The Trust Machine

Bitcoin is a system for electronic transactions without relying on trust

Satoshi Nakamoto

Why is bitcoin revolutionary?

Bitcoin’s most important feature is that it’s a trust machine.

Bitcoin is a completely self running computer program, it does not rely on any trusted third party to operate. All of bitcoin’s functions are facilitated via computer programming and all of bitcoin’s security features are based in math, physics, and probabilities.

Unlike today’s currency which is maintained by banks and governments, bitcoin is open source software, a banking system that is instead run on top of the internet.

This is trust in math, trust in code, not in humans.

The whole point of bitcoin is remove the distribution, production, and control over money from humanity. And the corruption that comes with it.

Bitcoin’s breakthrough was solving the byzantine generals problem, Satoshi discovered a way for people to coordinate without needing to trust each other.

A common motto of bitcoiners is “don’t trust, verify”. That’s because when it comes to money, people are incentivized to cheat. To take the easiest path possible.

When designing a system of money, Satoshi flipped the incentive structure on it’s head. Bitcoin ensures that everyone will follow the rules, because following the rules is what makes you the most money.

Bitcoin was designed to be simple, have no loopholes, be incredibly secure, and do one job and do it better than anything else. It doesn’t have any bells or whistles and it doesn’t try to be anything that it’s not. Bitcoin is sound money, the best money humanity has ever had.

You can trust that bitcoin won’t cheat you. Bitcoin is code. It holds no national, political or institutional allegiance. Bitcoin doesn’t know your economic status, age, religion, gender, ethnicity, or political views. Bitcoin doesn’t know who you are, or what you are. It doesn’t know if you’re a car, a refrigerator, or a drone. All it knows is it’s code. It has simple rules. If you want to send a unit of bitcoin, you have to provide the keys. It’s that simple.

You may be wondering what makes this so special? We have tons of trusted institutions, built and refined over hundreds of years for the purpose of safeguarding people’s money.

In the wise words of Satoshi:

The root problem with conventional currency is all the trust that’s required to make it 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. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

That’s it. That’s the revolution.

Bitcoin is a whole new monetary and financial system that’s based on uncontrollable money. The keys to unlimited wealth have been taken away from human beings and because of that society will flourish.

The Byzantine Generals Problem

How can I trust that when I send you a bitcoin, you won’t cheat me and just spend it twice? How can I trust that you will follow the rules? How can we both agree on how much bitcoin each of us owns? Information can just be copied over and over on the internet, in fact that’s the point.

If you have an apple, and I have an apple, and we exchange apples, then you and I will still each have one apple.

But if you have an idea, and I have an idea, and we exchange these ideas, then each of us will have two ideas.

George Bernard Shaw

In order to solve this problem, Satoshi had to invent digital scarcity, he had to put physics into the internet, he had to recreate the law of conservation of energy, within cyberspace.

To accomplish this task, he created a decentralized ledger, the first accounting innovation in over 700 years. Decentralized ledger just means that everyone is checking every transaction at all times, and everyone has access to the entire history of the ledger, for a fully transparent and fully secure money system.

Bitcoin is special because this had never been done before, and has yet to be replicated since. Every other blockchain can be changed by some powerful special interests. Bitcoin is the only immutable unchanging immortal and invincible network in the world.

Therefore, bitcoin has value because you can guarantee transactions are legitimate. You can trust that the ledger isn’t fraudulent. You can trust that the money is really yours. You can verify for yourself that you are in possession.

  • What is bitcoin? Another metaphor I like to us is “The great excel spreadsheet in the sky”. Think of it like an ultimate google doc, a shared spreadsheet in the cloud which is just a list of transactions. That’s literally all bitcoin is, it’s just a ledger, a list of who sent money to who.
    • Ok that’s all well and good, but this great excel spreadsheet in the sky, why is that revolutionary?
    • Ok well let’s spice up the metaphor a bit, bitcoin is digital gold right? So think of it like the excel sheet in the sky is actually more like a golden tablet in the clouds, this is some Moses shit, written into the tablet is a list of all of the bitcoin in the world, who sent it to who, who owns it, and who doesn’t.
    • Once you send some bitcoin to someone, a new line is magically carved into the tablet and it stays there forever. Anyone can see this golden tablet, it’s open and transparent and visible to all, but no one can change it. No one can actually touch this tablet, no one can change the rules. It exists beyond the clutches of humanity.
    • Because this tablet is immortal, it can’t be corrupted by humanity. You can trust what this tablet says because it’s impossible to corrupt.
    • What is bitcoin? Bitcoin is a truth machine. You can trust bitcoin because it’s secured by math and by code, it’s not controlled by humans. This is justice programmed into software, software that can’t be changed.
      • It is a system of money that is not controlled by any single entity, that is completely decentralized, meaning bitcoin exists everywhere, it’s in the clouds, there’s no center, no single computer that can be hacked. It’s incorruptible, it’s secure, and it’s eternal. 
      • And not only is it decentralized and incorruptible, but remember the golden tablet magically updates itself, it has no owner, no one in control. When you send bitcoin to someone, there’s no stopping the tablet from etching that transaction into itself for eternity.
      • Bitcoin is a system for electronic transactions without relying on trust -Satoshi
    • Bitcoin is not a company, it’s not a corporation, or an organization. In fact it’s a dis-organization. A very powerful dis-organization. It removes the need for humans to control money, it obsoletes the entire existing global monetary framework, it replaces a system of money you can’t trust, to one that you can. A system where the rules can’t be changed to benefit the rich and powerful. A system where no matter how much bitcoin you have, you can’t alter the tablet. THAT is monetary revolution.
    • “Bitcoin technology facilitates a trustless economic system where borderless financial transactions can be finalized without intermediaries. While traditional banking and payment systems heavily rely on trust, Bitcoin offers a way out of this system with no third party to resolve the double-spending problem and maintain properties like censorship resistance, immutability and decentralization. Such a framework allowed the creation and implementation of a system effectively disjoined from government control, delivering a revolutionary separation of money and state for the first time in history. Bitcoin breaks all models we’re used to, starting with reduced state power and control”
    • Hohoho well I’m getting ahead of myself a bit here haha
  1. The network is as unchanging and as automatic as the laws of physics, like handing a piece of gold to someone. So bitcoin keeps track of the gold and the transfer. There is no third-party involved when you hand a rock to someone, Gold is an element from nature, and physics governs the rules to hand a rock to someone else. Bitcoin is the money and the network, it’s both matter and the laws of physics that governs it, except this is all existing in cyberspace.
    1. Usually there’s no physics in cyberspace, you can copy a file as many times as you want, or to extend the metaphor, you could hand some gold to thousands of people at the same time.
    2. Bitcoin establishes a set of unchanging laws of physics in cyberspace, it’s the law of the conservation of energy
  • What is bitcoin?
    • “Bitcoin is a massive breakthrough in Computer Science, a highly-complex technological achievement and advancement for society: Bitcoin is the world’s largest super-computer and is growing at a rapid clip, reinventing money as we know it.”
      • “Bitcoin is the result of a fundamental breakthrough in cryptography, enabling absolute, immutable scarcity, the result of which, enables the freedom of humanity from the oppressive monetary exploitation of the state.”
  • Bitcoin is a trust machine and is obsoleting trusted human institutions, fundamentally altering existing power structures, it’s a revolutionary invention that has changed the course of human history.

The purpose of bitcoin is to bring full sovereignty to the individual, and to remove all dependencies on trusted third parties. No rulers, no master, no hosts, only peers

GiGi

References:

https://dergigi.com/2022/04/03/inalienable-property-rights/

The Mystery of Satoshi Nakamoto

The mystery of Satoshi Nakamoto is not a story the Sith would tell you

And yet it is one of the most fascinating legends ever told

It’s the story of a cryptic computer scientist, an unknown person or a group of people whose invention has changed human civilization forever.

Unlike many legends of past, this story takes place in the modern, digital age, where everything is tracked and logged. Satoshi’s communications are publicly available to read, and yet the details around her identity are still shrouded in mystery.

Let’s turn back the clocks to the year 2008

In the midst of a global financial crisis, the worst economic emergency since the great depression, and *almost* the most cataclysmic economic event in the history of mankind…

A shadowy figure quietly emerges

They call them-self Satoshi Nakamoto

To calm markets and suppress a meltdown, emergency measures are taken by world governments, flooding the economy to the tune of hundreds of billions of dollars in bailouts.

Our political and economic leaders barely save us from catastrophe, as the entire world is thrust into recession. Global debt reaches record levels, with the consequences merely postponed…

The date is October 31st

On a Halloween night, against the backdrop of this global crisis, this mad computer scientist quietly published the instructions to a new kind of money. A digital money, an unstoppable money, ruled by no human being. An invention they call bitcoin.

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

Satoshi Nakamoto

In a time where overleveraged financial institutions had risked the solvency of the global economy, the seeds of rebellion were planted. A revolutionary new economic system was born.

For you see, this unknown inventor of bitcoin, was a Cypherpunk

The Cypherpunks were a group of digital liberty advocates and anarchists. Computer scientists who were terrified of a future Orwellian surveillance state.

They decided to take freedom into their own hands, creating technology no government or corporation could stop.

And independent money was their holy grail.

The Cypherpunks had been diligently working towards the perfect digital money for decades. Their aim was to free humanity from the regulation and control of banks and middlemen, and to move money without permission and without censorship. The separation of money and state.

Standing on the shoulders of the Cypherpunk giants, Satoshi had a breakthrough.

No one ever meets this person. No one even knows if they are a single person or a group. No one ever hears her voice and no one ever sees his face.

That’s because there’s no one actually named Satoshi Nakamoto. It’s a pseudonym, a disguise, a mask.

Like a real life superhero, they conceal their identity from the world. All communication was done digitally through forum posts and email. Through meticulous planning, evasive linguistic tactics, and unpredictable posting times, Satoshi left no traceable personal clues in their writing.

In their whitepaper published on that fateful Halloween, Satoshi presents a solution to a computer science dilemma, a problem once thought impossible to solve.

Simultaneously reinventing one of the oldest technologies in human civilization, and solving a multi-thousand-year-old trust problem, with the first accounting innovation in over 700 years, Satoshi created a trust machine that runs on its own without human involvement. Eliminating the need to trust in institutions like banks, corporations or governments.

Satoshi discovered a way to put physics into the internet, to recreate the thermodynamic law of conservation of energy, within cyberspace. Satoshi discovered a new form of time, a decentralized clock, that ticks for eternity. Satoshi discovered a way to give everyone on earth access to immutable money, a revolution in property rights.

Her invention has profound consequences for the history of mankind. Completely altering our relationship with technology and the future of the internet.

For a couple of years, this mysterious computer scientist worked with volunteers to bootstrap the project. Fixing bugs and tweaking the code. And then without notice or announcement…disappears. Like a ghost.

It’s a departure without a display. Satoshi doesn’t broadcast his exit, she simply leaves. They stop answering questions and emails, and stop participating in discussions.

No one ever finds out who they are, where they came from or where they went. Satoshi remains unknown to this very day.

But with its creator gone, what is to become of this digital money project? Does it fade away into obscurity? Quite the opposite, bitcoin jolts to life, its thunder is heard around the world.

Bitcoin went on to become the fastest trillion dollar valuation of any asset in history, at an adoption pace faster than the internet itself. Spawning an entirely new asset class and industry, and tens of thousands of other projects.

The invention of bitcoin marked a fundamental breakthrough in cryptography, computer science, information theory, economics, and fintech.

Now the largest supercomputer on earth, bitcoin is completely immortal. It can’t be shut down, it can’t be hacked, it can’t be changed, and it can’t be controlled. Even the most powerful governments, corporations and institutions in the world are powerless to stop it.

It is a self-running software program designed to last forever.

No one knows how it’s possible for Satoshi to both solve this unsolvable computer science problem and build an all-powerful, self-sustaining monetary system at the same time.

To be a polymath, specialized across multiple academic disciplines, and yet evade detection. The field of experts in distributed systems engineering is so small you would think it would be simple to nail them down, and yet there have been no definitive leads.

Is Satoshi an alien? A time traveler? A secret government organization? A libertarian nerd in his mother’s basement? It’s very possible that Satoshi isn’t even alive anymore. It’s been well over a decade and still no one can unmask her Halloween disguise.

By disappearing Satoshi left behind ultimate fame, power, and fortune. Adding to the mystery.

It’s estimated that Satoshi is in direct control of over one million bitcoins, and yet the coins have never been touched. Satoshi can anonymously move or sell their bitcoin whenever they want.

The fact that this treasure has sat dormant since 2010 leads many to believe that it’s unlikely Satoshi is ever coming back. If someone had access to that kind of money, they probably would have used some of it by now.

Instead, Satoshi’s treasure sits untouched as a monument to their selflessness.

Satoshi’s treasure is becoming the largest pile of money in history. In only a few years Satoshi is expected to be the richest person in the world, as the value of their fortune surpasses $300 billion. It’s predicted that this treasure surpasses a trillion dollars in value as soon as the 2030’s.

Because bitcoin is completely transparent, Satoshi’s treasure is available for all to see, and yet remains completely untouchable. To compute even one of Satoshi’s keys would take until the heat death of the universe.

Satoshi’s treasure lies there mocking the old guard of money, the financial institutions he so adamantly dismayed. It lies there as a testament to the power of the individual, proving that anything is possible. And it lies there taunting those who are driven by greed, selfish minds who only seek out fortune and fame, proving that humans are capable of throwing it all away for the good of humanity.

It lies there forever jeering: “Here lies Satoshi’s legendary treasure — take it, if you can”

For many years to come, the mystery of Satoshi Nakamoto will continue to incite awe and astonishment as people first learn about bitcoin’s humble origins. People from around the world will marvel at the genius of Satoshi and speculate on their identity and motivation. Classes will be taught on bitcoin and the chapter dedicated to Satoshi will inspire generation after generation.

We will probably never know who invented bitcoin. The moral of the story isn’t to speculate on who Satoshi is, but to understand that it doesn’t matter. 

Satoshi gave bitcoin as a gift to humanity. We run bitcoin and we decide it’s future. There’s no one in charge now, bitcoin belongs to everyone. We are all equal participants in the network.

We are all Satoshi

________________________________________________________________________________

References:

https://tomerstrolight.medium.com/the-legendary-treasure-of-satoshi-nakamoto-c3621c5b2106

https://cepr.org/voxeu/columns/euro-area-bank-bailout-policies-after-global-financial-crisis-sowed-seeds-next-crisis

https://money.cnn.com/2014/08/27/news/economy/ben-bernanke-great-depression/index.html

https://steemit.com/ripple/@mooncryption/the-truth-behind-ripple-and-why-i-sold-it-all

Unmasking The Creator Of Bitcoin

https://hackernoon.com/the-genesis-block-and-the-phantom-a-story-of-satoshi-nakamoto

https://bitcoin.org/en/bitcoin-paper

Absolute Scarcity

Money doesn’t grow on trees, because if it did we would call it leaves.

Everyone intuitively understands that in order for something to have value it must also be scarce, or hard to come by. It’s the same reason air is free and a Denny’s grand slam isn’t.

Bitcoin has value because it is absolutely scarce – there is a cap of 21 million bitcoins that can ever be mined. Before bitcoin was invented, digital assets could be infinitely copied, there was no such thing as digital property, and scarcity in the digital realm was impossible.

The invention of Bitcoin marked a fundamental breakthrough in cryptography and computer science, enabling absolute scarcity. And after 13 years and thousands of other cryptocurrencies, bitcoin remains the only money that is perfectly scarce and verifiably finite.

Bitcoin is often compared to digital gold because of its scarcity, but unlike gold bitcoin is finite. There will only ever be 21 million bitcoin. This limit will never change thanks to bitcoin’s network effects, unparalleled decentralization, incentive structure, and governance model.

This limit is called bitcoin’s hard cap, it is written into Bitcoin’s source code and enforced by all participants running the bitcoin software.

You can think of bitcoin as the Mona Lisa, or a plot of land in Manhattan, or Wu-Tang Clan’s Once Upon a Time in Shaolin broken up into a quadrillion little pieces. When you own bitcoin you own a piece of something unique, something limited and one of a kind.

The reason this is so special is because no other money or digital asset possesses an unchangeable absolutely scarce monetary policy on the level of bitcoin. Bitcoin’s rules are set in stone, it’s the most certain, reliable, and credible monetary policy of any digital asset and of any currency.

Bitcoin is backed by its unique value proposition as being the only monetary good that ever has, and will ever be, absolutely scarce. This certainty of its supply and supply schedule is unique to bitcoin and can’t be recreated. This fixed supply is the reason bitcoin is the perfect store of value, and is the best savings technology ever invented. The intrinsic value of this one-of-a-kind absolutely scarce monetary policy, paired with bitcoin’s perfect supply inelasticity and unparalleled stock to flow ratio, will act like a game theoretic Schelling point to global bitcoin adoption.

Bitcoin’s predictable and fixed supply is the main reason many investors see bitcoin as valuable, and has been specifically cited by wealth managers like Paul Tudor Jones and financial institutions such as Fidelity and BlackRock. The examples of legacy financial institutional involvement into bitcoin are vast, however notably Fidelity is adding bitcoin to its 401k products, and adding bitcoin trading to its brokerage platform, and BlackRock is providing its clients with direct bitcoin exposure as well as a spot bitcoin private trust. The 2020’s have so far seen massive institutional adoption as bitcoin’s supply cap, immutability, and impact have been recognized by the larger financial ecosystem.

If scarcity makes money a good store of value, and the better the store of value the harder the currency, absolute scarcity makes bitcoin the hardest money ever invented. And harder money always wins out over softer money.

Over time as more and more people realize this unique property, the demand will continue to increase. With a fixed and perfectly inelastic supply, the price of bitcoin will continue increasing, drawing more people in, and fueling a positive feedback loop of adoption and price appreciation.

But but but, there are thousands of other coins?!

People who are new to Bitcoin and crypto misstate that bitcoin is not scarce because there are thousands of alternative cryptocurrencies. However, bitcoin isn’t fungible with these other currencies. It’s like saying the Mona Lisa isn’t unique because there are millions of other paintings.

It is true that cryptocurrencies on the whole are not scarce, but bitcoins on the bitcoin network are. Anyone can clone bitcoin’s open-source software at any time, launch their own coin, or split off of bitcoin’s main chain, but no one can carry over its acceptance, brand recognition, security or absolute scarcity. In a similar way anyone can copy the game of chess and make up new rules, expand the board and include new pieces, but they would have to convince everyone else to buy new sets and learn the new rules. A feat far easier in concept than reality. In fact, people have been copying bitcoin’s code since 2011, yet no cryptocurrency has come close to matching bitcoin’s market capitalization and adoption. Currently, bitcoin makes up 94% of the market cap of all proof of work cryptocurrencies.

People will continue to value bitcoin specifically because of its unique and unchanging properties. Bitcoin has the largest network effect, highest liquidity, most reliable monetary policy, and is provably finite. It’s the most secure blockchain by many orders of magnitude and is the only cryptocurrency undeniably classified as a commodity. Once you understand that bitcoin has no competition, its unique value proposition of absolute scarcity will cut through the noise.

Why bitcoin is the only money with absolute scarcity

Satoshi Nakamoto, the pseudonymous inventor of bitcoin, left the project in 2011 and the current maintainers of the project are numerous and decentralized. There’s no corporation, foundation, or group which controls the protocol. Bitcoin now runs on its own. And as the past few updates to the software have shown, it is now infeasible to change bitcoin’s consensus rules. The laws of bitcoin are as unchanging as the laws of physics.

Bitcoin was able to achieve this level of decentralization through years of obscurity afforded to it by being the first cryptocurrency. Bitcoin didn’t have a marketing team, it grew under the radar and didn’t have a market price for the first year of existence.

However, once people realized they could create their own monies, competition exploded.

The paradox of new blockchains is that centralization is necessary to manage their launch process, spearhead development, fund new coin marketing efforts, and to continuously grow their chain’s technological capabilities in response to this competitive environment. New crypto projects need to differentiate themselves from bitcoin, and from each other, in order to gain market share and drive adoption.

The challenge is not creating an absolutely scarce system. The technology is already invented, and bitcoin can be easily replicated. No, the challenge is a sociological one, making people care.

As with any new project, a considerable amount of investment is required to launch, grow, and maintain new cryptocurrencies. To bootstrap these projects it is necessary that these foundations and developers also maintain a significant level of governance over the protocol’s direction. Centralization is a natural outcome based on the efficiencies gained when monetizing these networks. To finance the growth of these cryptocurrencies pre-mines are common and these founders maintain a large fraction of coin equity, which further disincentivizes them from leaving their projects. True decentralization requires a relinquishing of power and an acceptance that their project could become irrelevant.

As a result, every other cryptocurrency created after bitcoin has a developer team, foundation, or a CEO with control over their networks and with the ability to roll back and hard fork the blockchain if necessary, or if mandated. They are centralized and susceptible to the whims of man. Similar to the monetary policies of Government fiat currencies, their rules can be altered by powerful special interests and their scarcity isn’t credible or certain.

It’s worth noting that most cryptocurrencies don’t even have a limited supply by design. Other crypto projects have moved on, and are focused on other blockchain use cases. It’s well established that bitcoin is the money protocol, and other tokens strive to have more utility outside of sound money. While some of these projects are incremental improvements in technology, they don’t come close to the investment potential that bitcoin does.

It’s now commonly understood in the crypto ecosystem that bitcoin is the sound money project, and other chains don’t really aspire to challenge bitcoin on this narrative. Doing so would be an uphill battle against its massive network effect, and would require centralization to get off the ground. Their hardness isn’t a selling point and their scarcity is mutable.

Because of the unique launch of the bitcoin protocol, and the centralizing force of bootstrapping a new cryptocurrency, absolute scarcity can’t be replicated and is a once a human history event.

Why is Bitcoin Scarce?

Bitcoin’s main technological breakthrough was to solve the double spend problem and create uncopiable units of currency in cyberspace. The nature of information is that it can be copied indefinitely, and before bitcoin there was no way to limit someone from just counterfeiting digital money without repercussion. Sure you could trust a 3rd party like a bank or a corporation to keep track of your digital money, but debasement/counterfeiting of money has always been commonplace and absolute scarcity was impossible.

The problem with money is that those who control it are incentivized to make more of it for themselves.

The beauty of bitcoin is that there is no trust required of a central institution, bitcoin’s scarcity is encoded in software. Satoshi designed bitcoin to be decentralized, trustless, and absolutely scarce to prevent humans from debasing the currency and inflating its supply. The whole point of bitcoin is to remove the control and issuance of money from the hands of humans.

Bitcoin’s absolute scarcity is a guarantee that your money can’t be diluted by central banks or by special interests. It’s a protest against debasement, and a revolution in property rights.

How does bitcoin ensure its scarcity?

Immutability of the consensus rules

There are many different layers to bitcoin, which are all beautifully woven together in a ‘rube Goldberg machine’ type-of-way to ensure its absolute scarcity is protected.

Bitcoin acts as a trust machine, enforcing its ruleset through a self running computer software. Trust is removed entirely, this is a system that reaches consensus without human decision making. Everyone in the network enforces the rules independently in a decentralized fashion.

Decentralized means there is no center, there’s no head of Medusa to cut off, bitcoin is more like water existing everywhere all at once. No person, corporation or government controls the network. Because there is no center, there’s nothing to control, nothing to take over, and nothing to shut down. Bitcoin also has no geographical boundaries, it’s a global network that runs on top of the internet and exists outside of the jurisdiction of nation states. This makes bitcoin extremely resistant to censorship and control. This decentralization is the key to bitcoin’s immutability.

Digital scarcity, the bitcoin ledger, it is real because there’s a consensus. Every node in the Bitcoin network runs the bitcoin protocol software independently, and will reject any blocks that don’t conform to the rules. In order to change the consensus rules you would have to convince tens of thousands of nodes to adopt these changes. Like chess, if you change the rules for yourself you do not change it for all other players around the world.

The network architecture brilliantly assigns those in charge of the consensus rules to have a strong incentive to resist any changes to bitcoin. Nodes run the bitcoin protocol because it’s in their financial interest as users of the currency to not debase their own supply. This is the powerful effect of bitcoin’s game theory at work.

Miners on the other hand, who would have an incentive to expand their supply, do not control the rules and are instead competing to mine the chain that people value. If there was a split in the network, where some nodes continued running the bitcoin software and others created a new coin without absolute scarcity, miners would choose the chain where they would most profit, an “if you can’t beat them, join them” game on a massive scale.

In fact this game theoretic outcome has been tested and validated, when, in 2017, 95% of miners all banded together to change bitcoin’s consensus rules to improve Bitcoin’s scalability. Nodes and users however, simply refused to update, and prevented the consensus rules from changing. The “blocksize war” of 2015-2017 is where bitcoin’s immutability was put to the test, and its outcome has forever cemented bitcoin’s absolutely scarce money supply.

Bitcoin’s Source Code

Bitcoin’s hard cap is mathematically determined due to a process known as the Halving. About every 4 years, or every 210,000 blocks, the mining reward is cut in half. That means the number of total bitcoin that enter circulation once a block is mined gets smaller and smaller as the total number of bitcoin approaches 21 million.

The timing of these halving events are assured by another hard coded bitcoin process known as the difficulty adjustment. Even if the number of miners multiplied by trillions in a couple of days, bitcoin’s difficulty adjustment would just change how much processing power it takes to mine a block, acting as an automatic pacemaker to keep the supply perfectly inelastic regardless of demand. Bitcoins difficulty adjustment is so powerful, all of the energy of the Sun could be funneled towards mining blocks and still no more bitcoin could be created any faster. The last ever bitcoin will take over a hundred years to mine, and the final block reward will be sometime around the year 2140.

Why Scarcity is vital for a good money

Bitcoin is money. It’s not a company or a product, therefore it doesn’t have cash flows and its value can’t be derived through familiar methods. Bitcoin is what’s known as a monetary good, and its value is instead derived from its ability to better satisfy the characteristics of good money. Some of these monetary attributes were described thousands of years ago by Aristotle and they still hold true to this day. They include durability, divisibility, fungibility, portability, verifiability, acceptability, and of course, scarcity.

Bitcoin has many qualities that make it good at being money and bitcoin’s absolute scarcity is one of the main differentiators. It is bitcoin’s superiority in satisfying these monetary attributes which makes it a better money than anything that has come before or since. Bitcoin’s mathematically provable absolutely scarce supply cap is the greatest assurance that value will be preserved into the future and can’t be diluted.

When monies compete, scarcity often determines the winner. However scarcity isn’t about how rare an asset is, in fact commodities that are extremely rare to the point where no one owns them lack liquidity and therefore can’t even be used as money. Bitcoin has the advantage of being infinitely divisible so its rarity/finite supply doesn’t lessen it’s usefulness as money.

More important than rarity’s impact on scarcity is money hardness. Hard money refers to money that has an unforgeable costliness, where it isn’t easy to produce or counterfeit. Hard money also doesn’t loose it’s value quickly, but acts like a store of value for a long period of time. Money that grows on trees would be considered soft money, abundant and easy to make without much work, and inflates and loses value quickly. Gold is the classic example of hard money, because it takes a lot of work to mine, and can be stored for thousands of years without deteriorating.

If money is printed faster than the rate at which the economy grows, then each unit of currency will be worth less overall. This is the definition of inflation, and why bitcoin’s hard cap and halvenings make it inflation proof. A hard inflation proof money will always be more valuable in the long run than the alternative, which is why hard monies have historically replaced softer ones throughout history.

Stock-to-flow

Bitcoin’s halving events reduce the rate at which bitcoin is mined, where every four years the amount of bitcoin mined in each block gets cut in half. This means that the number of bitcoins produced per year will get smaller and smaller as the limit of 21 million is approached.

In fact, there is only about 10% left of the bitcoin supply to be mined over the next 118 years, as the rate of bitcoin grinds to a halt. This in effect means that the total number of bitcoin (the stock) is much greater than new bitcoin being created (the flow).

This ratio of stock-to-flow is what gives a money it’s hardness, since this rate determines how much more currency will enter the market and dilute the existing stockpile. The harder the money, the more resistant it is to change in supply.

The total supply of gold increases at about 1.6% per year. If you divide the total amount of gold ever mined by the amount produced each year, you would get a stock-to-flow ratio of approximately 62. The ratio measures how many years it would take to double the supply, and thereby cut the value in half, all else being equal.

Gold currently has the highest stock-to-flow of any commodity on earth. Having a high stock to flow ratio is actually quite an uncommon feature for commodities. Elements like rhodium are actually much rarer than gold, but due to rhodium’s importance in industrial processes, the total stockpile gets used up quite quickly so its stock-to-flow is lower. Gold has the advantage of being extremely chemically stable so its stockpile doesn’t erode over time, it’s been mined by humanity for thousands of years, and it is difficult to mine quickly.

Bitcoin’s current inflation rate is 1.7% and it’s current stock to flow is 57 which is quite similar to gold. When the block subsidy halving occurs in 2024 bitcoin’s stock to flow ratio will double to about 120, and in 2028 it will double again to 240. Unlike gold the total supply of bitcoin will never double, and its stock to flow will keep multiplying to infinity.

Because of bitcoin’s terminal supply and halving events, bitcoin is the hardest money that has ever existed.

Money hardness and competition

Throughout history many different items have been used as money. From beads and seashells, to stones, salt, and livestock. Over time, technological progress and financial incentives accelerated the production of these goods, decreasing their stock-to-flow, diluting their value and their usefulness as money.

However, interestingly enough, despite all improvements in technology the stock-to-flow ratio of gold and silver have remained relatively constant. This is because as we discovered better mining techniques easy deposits of these metals were depleted and only the harder to reach areas remained. As a result, gold and silver (whose stock-to-flow is second only to gold) were the main monies for thousands of years.

Whenever gold and silver (the monies with the highest stock to flow) came into contact with any other money, it was always gold and silver that won out. This is because as goods with the lowest debasement rate they were able to store their wealth better than other goods, making them more useful as money.

Eventually it was gold that succeeded over silver as the global reserve asset, as paper money derivatives made silver’s medium of exchange advantages obsolete. And then gold was of course eventually co-opted by governments and was replaced by fiat currencies due to their superior monetary attributes, divisibility, portability and verifiability. Weaknesses that bitcoin doesn’t have.

Price Impact

In the short run bitcoin’s supply issuance halvings historically have created a cycle of price appreciation. Every 4 years bitcoin’s price spikes and settles to new all time highs, closely following the supply shocks of the decrease in mining rewards. Additionally, bitcoin’s difficulty adjustment ensures perfect supply inelasticity, regardless of demand. This means that even though the monetary value of each block is increased, no matter how hard you dig you can’t inflate the supply. Any other commodity that rises in value incentivises people to create more supply which then offsets the price rise.

Not so with bitcoin. As less bitcoin enters the market against its accelerating adoption rate, there isn’t enough supply to meet demand so the price rises. The price rise isn’t offset by increased production, so the price keeps rising. This accelerated rise usually follows a brief bout of hysteria and the price shoot higher than equilibrium in a FOMO mania that then results in a correction and a price crash.

These cycles of user adoption, accumulation, supply decrease, and price appreciation are fed by bitcoin’s stock-to-flow doubling every four years, correlating with bitcoin hardening as money and growing increasingly scarce. Regardless of the short term volatility that the supply shocks initiate it’s bitcoin’s difficulty adjustment, perfect supply inelasticity, and hard cap which keeps bitcoin absolutely scarce and leads to its upward price trajectory over the long run.

Bitcoin’s number-go-up (NGU) technology is driven by its absolute scarcity and exponential demand. And its exponential demand is driven by its fixed supply assurances. That’s far from the only reason, but it can’t be understated just how impactful a liquid and mathematically certain scarce monetary asset will be to the global financial system. Combining the fact that bitcoin is unique, its brand is one of the most recognizable in the world, and its adoption rate growing faster than the internet, its not long before bitcoin is impossible to ignore.

Bitcoin has no competition. No other money could ever match bitcoin’s level of scarcity. Its absolute scarcity will pull in value from all other store of value assets. Money is a winner take all system, where the fewer monies to exchange is always preferred. And of course society will also have the incentive to adopt a good money over a bad ones. Government fiat currencies have failed over and over again over the course of hundreds of years, with the current epoch only existing for 50 years, a relatively short term economic experiment. They are prone to unsustainable leverage and inflation. Nation states have shown time and time again that they will always sacrifice monetary sustainability with short term political gain. This has ensured that government monies will always diminish in value over time.

Cryptocurrencies too don’t offer the same hard money assurances that bitcoin offers. The alternative future use cases for these cryptographic ledger technologies are vast and will be tested, however the use case for a superior money is by far the most disruptive on a global scale.

Absolute scarcity is a very layered phenomena that isn’t widely understood to date, and one which is very underestimated. There will never be more than 21 million bitcoin. That means there isn’t enough for each millionaire in the world to own a single bitcoin. It is very hard to predict the impact bitcoin will have on the $10 trillion gold market, the $20 trillion art and collectibles market, the $100 trillion stock market, the $225 trillion real estate market and the $250 trillion bond market. Unlike gold or any money that came before it, because bitcoin is infinitely divisible it can store all of the value of the solar system, and still function as a liquid money, even with its supply cap. It’s also important to note that prices are set by marginal sellers and buyers. One dollar into bitcoin doesn’t equal one dollar rise in price. As the price increases, if there are fewer and fewer people who would want to part with their bitcoin due to its superior hardness as money, the rate at which the price increase could be exponential.

As adoption climbs towards critical mass, and as bitcoin is identified as the global money with the greatest relative scarcity, bitcoin will shift more and more from a store of value asset into a medium of exchange. Its price will stabilize in an ‘S’ curve adoption fashion as its used less as a savings vehicle and more for the purchase of goods and services. This will cause the price to become moderately deflationary, matching the growth rate of the economy at large.