Bitcoin is bamboo. It grew underground and mostly unnoticed for its first 10 years and then shot up at a startling rate into the public eye after the 2017 bull run. This article discusses a variety of reasons why people should (a) learn more about bitcoin and (b) “get off zero” by purchasing a little of it…if your financial situation allows. I organized my thoughts into aphorisms — brief observations — as well as three themes that helped me make sense of bitcoin’s uniqueness: People, Process, Principle.
The People theme deals with bitcoin’s lack of centralized leadership and its organic growth from regular people joining and using the network, the Process theme deals with bitcoin’s technical systems and functions, and the Principle theme highlights aspects of the philosophy underpinning bitcoin.
On Organic Growth: Bitcoin has attracted grassroots momentum over a 12-year period that emerged from a very principled and intentional design process. Bitcoin organically grew from an anonymous creator going by the name Satoshi Nakamoto and the fact that no one has emerged to claim and prove creator’s status is a unique and meaningful story, especially in a world obsessed with gaining attention, fame, and intellectual property rights. Bitcoin is an anonymous gift. (People, Principle)
On Politics and Outside Influence: Bitcoin removes politicians, media pundits, influencers, money managers, industry experts, central bankers, presidents, CEOs, lobbying firms, and military leaders out of monetary policy and production. (People, Principle)
On Open Collaboration: Volunteer coders/developers donate their time to this “open source project” in the spirit of collaboration. The original bitcoin protocol is open source, meaning that it is free to download and install, allowing anyone to verify the entire bitcoin blockchain and contribute to ongoing maintenance. Bitcoin development brings out the best in people, the collaborative spirit of human beings. (Principle)
On Money Supply: Bitcoin has an inelastic money supply, it is hard capped and can only lead to the creation of 21 million bitcoin. Ever. (Process)
On Lacking Corporate Structure: There is no corporate structure or mandates that exist to determine bitcoin policy. Bitcoin only follows its protocol that is carried out from network consensus. (People, Principle)
On Lacking a Central Authority: There is no central authority or lead coder that makes decisions — for an implementation to get adopted, it must adhere to the parameters of the original protocol. (People, Process, Principle)
On Unstructured Growth: Bitcoin did not need or rely on centralized investment, marketing, venture capital money or connections, conferences, or advertisement for its growth. (Principle)
On Verifying Without Human Trust: Bitcoin is a system built entirely on “expensive verification processes” (i.e., computer processing power to solve complex math problems) whose participants are spread out across a diversified network. This eliminates the need for any human-driven trust or necessary accountability practices between parties. It is 100% mathematically verified, 0% human trust. (Process, Principle)
On Inelasticity: Bitcoin is not an organization with ever-expanding and ever-changing goals. Bitcoin’s goal posts never move, it follows an immutable protocol. (People, Process, Principle)
On Self-Sufficiency and Learning: Bitcoin has a DYOR (do your own research) ethos that values self-sufficiency, self-reliance, and self-determination. (Principle)
On Censorship: Bitcoin is censorship resistant because no one can control where or how it gets used. (Process)
On Permission: Bitcoin is permissionless, you don’t need anyone’s permission to join and use the network. (Process)
On Being Immutable: Bitcoin has an immutable (indisputable, final) monetary policy because no one can easily change it. When a transaction settles and gets added to the blockchain, it is there permanently. (Process)
On Being Antifragile: Bitcoin is antifragile because the network actually improves and becomes more secure from chaos, disorder, and hacking attempts. (Process)
On Full Legal Ownership: You have 100% legal ownership of your bitcoin if you have your private keys. There is no debt owed to any person or entity tied to your bitcoin. (Principle)
On Market Mechanisms: There are no market mechanisms — like a stock market circuit breaker — that exist to stop trading or steer the velocity of trading. Circuit breakers influence trading by limiting people’s choices, bitcoin allows people to do what they want with their money. (Process, Principle)
On Human Decisions: No emergency meetings between commodity producers can alter supply like the ones that occur in the current global monetary system and in the oil industry. (People, Principle)
On Government Interference: No governments have publicly pledged to buy a certain amount of the asset (yet). (People, Principle)
On Minimizing Bias: Bitcoin has removed human psychology from the monetary production process. (People)
On Lack of Executive Direction: There is no CEO, executive team, or board of directors to set, or even influence, the direction of bitcoin. There is no single person, or even small group of people, to stop things once they are set in motion. (People, Principle)
On ROI: In its 12-year lifespan, bitcoin is the best performing asset (in terms of Return on Investment) in history. If you had invested $100 in bitcoin in July 2010 (when it cost $.008 per BTC), that $100 investment would now be worth $110,962,500 (at $8,877 per BTC). If you had made the same $100 investment in the S&P 500 Index, today you would have $225 — as the S&P 500 Index has returned 225% over the last decade.
On Higher Lows: In every year other than 2015 bitcoin has made a “higher low” — indicating the growth of people who won’t sell their bitcoin easily and want to hold their bitcoin over the longer term. These people are called HODLers. (People)
On Being Non-Sovereign: Bitcoin is a governing body over itself, without any interference from outside sources, people, or countries. (People, Principle)
On Being Open 24/7: Bitcoin is a global market that never closes and has a very low barrier to entry. (Process)
On The Source of Logic: Bitcoin replaces human-directed monetary policy with non-political mathematical logic emerging out of predictable and pre-programmed algorithms. (People, Process, Principle)
On Scarcity: Bitcoin is first digital asset with “absolute scarcity.” (Process)
On Supply and Demand: For a regular commodity, a change in demand will alter the supply schedule and production decisions of the producers. This is not the case for bitcoin. (Process)
On a Hard Capped Supply: As bitcoin’s value rises, more effort to produce bitcoin does NOT lead to the production of more bitcoin. When that does occur for other currencies (like the U.S. dollar) it devalues a currency over time. (Process)
On Fraud: Honest nodes have zero financial incentive to confirm fraudulent transactions on the network. As of May 2020 bitcoin costs roughly $500,000/hour to hack, and they would need to keep that hack ongoing to truly disrupt the network. The more blocks that bitcoin mints, the more expensive it is to hack it. (Process)
On AltCoin Centralization: The double bind of AltCoins is that the builders of these alternative currencies must be able to attract outside investments and users in a very crowded market (more than 1,000+ AltCoins exist today). To attract investment capital and users effectively, the AltCoin leadership teams have to be very organized and succinctly articulate their product’s competitive advantage. The “active organization” of their product — the necessary marketing, technical development, and fundraising by a centralized leadership team — makes it difficult to prove that their currency is not controlled (or at least heavily influenced) by that team. (Principle)
On Shifting Power: Bitcoin shifts power from institutions, power for the few, to platforms and a protocol, power for the many. (Principle)
On Settling Large Transactions: Settling large transactions is extremely cheap with bitcoin. For example, a recent bitcoin transaction involved moving over $1 billion worth of bitcoin within a few minutes for an $83 fee. Compare this to moving a billion dollars in banking or money transmitting services and you can pay between 1–3% of the transfer amount, which in this case would be between $10 million and $30 million, and it would have taken between 5–10 business days to “clear.” As a society we have accepted that being charged substantial fees to move around our money is normal, we have accepted it because no one had invented a better tool to solve the problem of paying others to do things with our money. Now we can move large sums of our money around on our own, and do it much more affordably and faster than traditional alternatives.
On Public Verifiability: And how do I know the numbers from that $1 billion bitcoin transaction in the above example, the inquisitive mind might ask? Bitcoin transactions are public, they are verifiable on the blockchain by anyone. Now we can’t know who moved the money or where they are located or what they are doing with the money, but the bitcoin blockchain — the network of nodes, miners, and exchanges on thousands of decentralized computers around the world — all have that same transaction data in the permanent ledger (the bitcoin blockchain).
On Debt Aversion: Bitcoin is not based on debt and borrowing like the current global monetary system. (Process)
On Being “The People’s Money”: Bitcoin is the money of the people, it is a common resource that anyone can participate in as long as they have an internet connection. We are seeing this play out in the poorest areas of Africa, the Middle East, and Latin America. (Principle)
On Legality and Ownership: Wyoming has adopted a comprehensive set of laws that give bitcoin legal status without the involvement of a 3rd party intermediary. Many other states are copying these laws. The laws reflect the peer-to-peer nature of cryptocurrencies without requiring the involvement of a 3rd party. Without a 3rd party involved, the debtor/creditor relationship dissolves because it recognizes the cryptocurrency property rights of the owners of virtual currencies. (Process, Principle)
On Counterparty Risk: Bitcoin removes counterparty risk because signing the bitcoin transaction with private keys allows everyone in the network (operating a node) to independently verify that transaction. (Process)
On The Legal Status of Money: Money gets its legal status and protections from “super-negotiability” rules under the Uniform Commercial Code (UCC) Article 9. Wyoming’s new laws apply key aspects of the UCC to digital assets. First, digital securities now have the same treatment as uncertificated securities. Second, digital consumer tokens fall under the same treatment as general intangibles. And third, virtual currencies are given the same treatment as money under the law. (Process)
On Custody and Bailment: With bitcoin, as long as people have their private keys they have total ownership over their digital asset, which is not the case with many securities. The state of Wyoming has emerged to lead the charge to create a clear legal and regulatory environment for bitcoin and other digital assets. As part of this legal landscape Wyoming treats cryptocurrency custody as bailment. That means that cryptocurrency owners retain their property rights over their crypto while it is being “held” with a qualified custodian (bank, trust). In other words, people are allowed to retain their property rights in the digital assets instead of being forced to give them up to a counterparty, which is often the case in traditional asset custodial services. Wyoming’s bailment process for digital assets is like using a valet service for your car — the valet (bailee…bank or trust company holding your crypto assets) has possession and control of your car for a specified amount of time but never has ownership of your car. The ownership always resides with you, the bailor. (Process)
On System Core: Bitcoin has no single point of failure (person, database, computer hardware). There is no “system core” to be compromised, there is no “Oz” behind the curtain. (Process)
On Price and Value: The value of the bitcoin network and the price of a single bitcoin will increase as more people join and use the network. So bitcoin value and use are positively correlated — the more people join the network and do business with bitcoin or store their wealth in bitcoin, the more the value will increase. (Principle)
Author Disclosures
1. I own a small amount of bitcoin.
2. I own small amounts of other digital assets, cryptocurrencies, AltCoins, whatever you prefer to call them.
3. I do not claim to be a bitcoin, blockchain, cryptocurrency, financial, technology, or economics subject matter expert. This series of articles is for education, it is not financial advice.
4. I do claim to be a regular guy who is happily married, has two young kids, am a business owner, and am a dude who enjoys BBQ and coffee…and I strongly believe we will all be faced with a Money Matrix Moment within the next 10 years. I prefer to take the red pill and learn the truth about innovation even though being uninformed is so much easier and less stressful.
5. Letting “experts” figure out all of this for me is not an acceptable answer to me. I can enhance my own knowledge, learning, and expertise, which also ties into the bitcoin ethos of self-sufficiency.
6. My goal is to give readers information to help you make choices that align with your life goals, whatever they may be. You will choose to do what you want with your time and money, and I’ll do the same.
7. Enjoy the journey. Make decisions from positions of knowledge, strength, and understanding, not fear.
REFERENCES
Ammous, Saifedean. (2018). The Bitcoin Standard: The Decentralized Alternative to Central Banking.
Antonopolous, Andreas. (2016). The Internet of Money: Talks by Andreas Antonopolous.
Ferguson, N. (2008). The Ascent of Money: A Financial History of the World.
PHOTO CREDITS
Bamboo: https://lewisbamboo.com/how-bamboo-grows/
Money Emergency: https://www.wvxu.org/post/keeping-money-hand-case-emergency#stream/0
