Wrapping our minds around what bitcoin is, what is special about it, and what it aims to achieve is plain hard. Whether you want to love it or hate it, understanding it is the first step of the journey. Most often, we don't even know what to ask or where to start.
The following are starting points to explore what bitcoin is and what makes the project important and special. They are neither exhaustive nor meant to be used for in-depth learning or worse, gospel, but rather as places to sink your teeth into, grapple with the concepts foundational to bitcoin, and maybe start asking your nearest bitcoin enthusiast some questions.
This document is broken down into the following 7 sections:
- Get Started
- Bitcoin and Freedom
- Bitcoin the Political Project
- Bitcoin is Software
- Bitcoin as Money
- Bitcoin and Price
- Bitcoin and Privacy
Some of the basics to get you going.
You don't need any permission to develop on bitcoin, or to use bitcoin. This is a cornerstone of the system. You don't need an ID to send a payment, to recieve a payment, or to write another programming language library and integrate bitcoin into your website or business. Connect to the network, and you can use it.
Bitcoin is open for everyone to participate. This include its governance, its implementation, and its code. Everything is out in the open. There is no "insider information", no secret meetings. The code is open source, and the process through which the many bitcoin implementations change and upgrade is for all to see, comment, debate, and participate in. Come and join us.
Bitcoin doesn't care about who you are (we often speak of it as being a flat, or neutral, network). Structure your transaction and your bytes correctly, and the network will propagate your payment. Own the keys to your coins, and the protocol will recognize the legitimacy of your claim to those coins.
This bears similiarities to how the web operates. Anyone with a connection and a browser can go to www.wikipedia.com and get access to the world's knowledge. No need to be anyone special; both wikipedia and bitcoin will treat you the same whether you're the richest person on earth or the poorest. This is fundamental, and another cornerstone of the project.
Bitcoin is opt-in. No one is forcing you to use it. Every single person purchasing bitcoin has chosen to do so purposedly. This is a remarkable departure from the way we use the US dollar, for example, or any other government prescribed fiat currency.
Money is half of every transaction we ever make. We tend to be very fond of our freedom to choose which cellphone to buy or which house to live in. The choice of which money to use, however, is not allowed anywhere in the developed world; it is prescribed and severely enforced by governments.
Fragility is the concept where something gets weaker as it gets attacked or comes under duress. Robustness is the ability for something not get weakened by attacks or shocks.
Antifragility is the idea that something gets stronger as it is attacked.
The concept of antifragility was popularized by Nassim Taleb, and bitcoin is often thought as being antifragile; not only has it resisted attacks in the past, but every unsuccessfull attack on the network has made it stronger, either by allowing the implementations to better their codebases or by building up its "social immune system".
The exact number has very little importance; the fact that it has a hard cap is the real difference between bitcoin and other monies, and the consequences of that choice are explored below. As for the choice of 21 in the first place, we can only speculate as to why Satoshi choose it. He never justified or explained it.
Bitcoin has an ultimate cap on its supply; there will only ever be 21 million bitcoins created. We can, however, always add decimal places in order to use smaller units of the currency. It's like how 1.0 = 1.00 = 1.000000. As you add decimal places, the total number (21 million) itself doesn't change, but the units that can be used become smaller, and there are more of them. You can never "run out of coins".
It is rather unfortunate that bitcoin the currency unit was named the same name as Bitcoin the protocol. But that's the gist of it. We speak of sending bitcoin across the world (like sending dollars), but when we speak of the protocol itself, we capitalise the word (as in Bitcoin is an open borderless neutral permissionless antifragile system). As bitcoin increases in value, however, this problem shows up less in day-to-day life, as people are starting to speak of sending satoshis to each other (satoshis are the smallest unit of bitcoin one can transact with (0.00000001 btc), just like the penny is the smallest amount of dollar one can send.
Think of how easy/hard it is to accomplish each of these 3 tasks:
- Send an message across the world
- Send a hundredth of a penny across the world
- Send a million dollars across the world
One of these is currently much easier than the others. Note that if the right to send messages effortlessly across the world was taken from you through KYC processes and IDs and international restrictions you might feel (rightfully) outraged. Note also that messages sent across the world using software rather than physical objects (for example by using WhatsApp or email rather than handwritten letters) open up the range of messages one can send, from entire gigabytes (movies for examples) to single letters ("k"), to single bytes if the user so wishes. These smaller messages were not economically feasible in the times of paper letters and stamps; today we use them hundreds of times a day. Software broadens the range of possibilities.
The Lindy effect is a theory that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy [2].
Every day bitcoin survives, your expectation that it will survive the next day increases. The overall belief that bitcoin going to survive is much stronger after 10 years than it was after year 5, which was itself stronger than it was after year 1.
The Philosophy of Liberty and the Bitcoin project are closely aligned.
When you purchase bitcoin, you know that no government can come in and change it at will, debase it, or censor it. Bitcoin is not controlled by any one jursidiction; it is not subject to the wims of politicians. Very few currencies can say the same today.
Because of its potentially disruptive effect, Bitcoin is inextricably tied to politics.
We are subject to the monetary policy of our central banks through our use of the currency they create and control. For most people in the developed world, this is not too much of a problem, because those central banks tend to behave predictably. But this power to pull and push on the money supply and influence inflation is only made possible by the monopoly they have over the money used by their citizens. The ability to opt-out of your country's fiat money system takes away power from the central bank to target and control inflation. This ability will not be relinquished easily.
Religion and State used to be very much the same in the developed world; they were separated for the better over the last century. Bitcoin offers a way to do the same with money and State.
The same way we think of our religious leaders making decisions about minimum wage legislation as a rather odd idea, we might come to think of having our politicians in charge of the money supply as being quite silly in retrospect.
Software is eating the world.
Software is built in layers. Examples: the internet and TCP/IP, or SMTP, the protocol for email. Small building blocks that are very flexible and non-presriptive, that are then used to build on top of.
Open source means we're all on the same team. This is not like Honda versus Toyota where they keep secrets from each other; good ideas simply get incorporated into the protocol. Any improvement eventually makes its way into bitcoin.
Blockchains are similar to databases. They have, however, major drawbacks. Slow, costly, energy intensive. Not many things are worth the price paid to etch a piece of data in a blockchain. To be willing to pay that you need to have very specific needs. For example, being able to resist government control, censorship, or other powerful actors. Sharing kittens or game items might not fit that criteria.
There is a myth that says you need to understand bitcoin to benefit from its properties. Do you really understand email at the bytes level? In fact if we ask ourselves if we really understand our money in the first place, we usually find that indeed we don't. Central banks? Overnight lending rates? Fractional Reserve Banking? Quantitative Easing? People don't understand the current financial system more than they understand bitcoin. And contrary to the legacy financial system, everything is in the open. Source code, governance system and upgrades. There is no insider information; you can learn it all for free.
Shipping containers are the same across the world. They are an example of a protocol [1]. The English language is a protocol. A protocol is just an agreed upon way of doing things. Bitcoin is a protocol. It is programming language agnostic, computer architecture agnostic, and doesn't care if it is transmitted over the internet, short wave radio, or satellite dishes.
The combined effort of people who come together to work on a project for free can be astonishing. Linux, Wikipedia, PostgreSQL. The speed of iteration is unmatched. These are monuments of human achivements and of what can be done together in a non coercive way. Linux is fully opt-in, yet runs probably more than 80% of computers and servers on this planet. PostgreSQL, Python, NodeJS, name them. Check out this Ted video from Michael Nielsen (@michael_nielsen about the Polymath Project, where a mathematician tentatively decided to open source his approach to an unresolved mathematical problem, only to have it solved by the world's community in 37 days, and then actually building a proof for an even harder mathematical problem!
Austrians believe that money is not imposed but chosen freely. They believe we should let monies compete in order to discover the best medium used as money; that the best money is defined by being the medium of exchange choosen freely by the market.
Yes... Just like gold. Unfortunately bitcoin has been marketed as a payment service in its early days, and we are still suffering from that misguided characterization [3]. The foundation pieces of the bitcoin protocol (the first layer) are much more suitable for a store of value. Second layers will bring method of payment. But then again they could not, and it wouldn't be the end of bitcoin (see gold); it's just that software is so flexible, in the case of bitcoin we do in fact think it's possible to do it all.
You think bitcoin is complicated? Try explaining the financial system to someone. Central banks, overnight lending rates, fractional reserve banking, quantitative easing, bla bla bla... the current system is so complex the majority of people don't even know what central banks are supposed to be doing to help them in their daily lives. On the other hand, try explaining the rules of bitcoin to a 12 year old; 10 minutes will suffice (indeed for a great example on how to do just that, check out the book Bitcoin Money, A Tale of Bitville Discovering Good Money [4].
Wealth needs to protect itself from inflation and is seeking places it can hide; this creates a chase for anything that doesn't devalue over time. Malinvestments and empty real estate are examples of this phenomenon. A simple store of value would suck away a lot of that "investment". Eventually, because bitcoin is provably scarce, it could become a black hole of investment, where it sucks in wealth from everywhere else.
Supply and demand.
Arguing bitcoin is pricy at $8000 is like saying a quarter ton of gold is too expensive because it's a few million dollars. We are talking about a fungible good that is almost infinitely divisible. You can hold as small an amount as you want. It doesn't matter; you're still claiming a bit of real estate on bitcoin island [0].
[0]: This is not a direct quote, but I first heard the idea put this way by Tuur Demeester (@TuurDemeester) on the The Investor's Podcast (TIP244).
[1]: The idea of using the ship containers as an example for a protocol comes from Tuur Demeester again, on the The Investor's Podcast (TIP244). Worth a listen.
[2]: Nassim Nicholas Taleb (2012). Antifragile: Things That Gain from Disorder. Random House. ISBN 9781400067824.
[3]: Again this is not a direct quote, but I first heard the idea put this way by Tuur Demeester (@TuurDemeester) on the The Investor's Podcast (TIP244).
[4]: Bitcoin Money, A Tale of Bitville Discovering Good Money is a book written by Rabbi Michael Caras, aka The Bitcoin Rabbi (@thebitcoinrabbi). You can find the book here.