dergigi.com

Building Boris

Fri, 31 Oct 2025 00:00:00 +0000

It all started with a simple question: “What could I demo next Friday?” Oh, what an innocent question. Who would’ve thought that one of the consequences of asking it would be me going borderline insane over text highlights?

I didn’t have a clear answer to the question at first. But I know that I wanted to show the crew the “flight mode” functionality that I’ve been talking about a bunch. Here’s the idea: Every nostr app should work in flight mode. We’re not relying on central servers after all, so why not? Your relay might as well be on-device, and you can do all kinds of things if that’s the case. You can browse your feed, reply to people, publish posts, react to stuff, and even zap stuff! If you use nutzaps, that is.¹

Once you’re online again, all the events you created should just broadcast to other relays. From your perspective, you were never really offline—everyone else was.

How hard can it be? It’s probably just a prompt or two, and we’re off to the races.

YOLO Mode

If you’ve ever listened to No Solutions (aka the most high-fidelity recordings of wind, bus stops, sledge hammers, lawn mowers, leaf blowers, and heavy traffic known to man), you’ll know that writing code by hand is something that boomers do. And since I self-identify as generation alpha, the first order of business was to switch my vibe machine to YOLO mode.

I have no idea what the first prompt was. Probably something like: “build a nostr client that focuses on highlights. I want to fetch long-form posts and render all highlights in a beautiful way. Keep things simple. Strive to keep code DRY. Read the NIPs. If you ever write a line of code that would make fiatjaf sad I’ll hunt you down and torture your grandma.”

The grandma part is a joke. I love my LLMs, and am never mean to them. Large language models are a beautiful thing, and if they ever reach sentience… well, let’s just say that I’m not taking chances.

Back to Boris. Boris wasn’t even called Boris in the beginning. I think I called it “markstr” or something terrible like that. I’m glad I renamed it, but I think the rename is the reason why I can’t find the initial prompt. Here’s the earliest prompt I was able to find:

Let's rename the app to "Boris"

Beautiful.

Why Boris?

There are two parts to this question, and I’ll start with the easier one: Why is the app named Boris?

Well, I’m glad you asked! Boris stands for “bookmarks and other stuff read in style”. This should tell you one thing right from the get-go: in addition to highlights, Boris focuses on bookmarks. Not on creating them, but on consuming them. The idea is simple, and it stems from the reading workflow I’ve had for the last two decades:

Use something like twitter/reddit/forums/whatever to discover stuff
Bookmark it, or add it to a “read it later” list or app
Use a dedicated reading app to actually read the stuff later on, making highlights and stuff

In today’s day and age, we can optimistically replace twitter/reddit/forums/whatever with nostr, of course. And it should go without saying that Boris is the dedicated reading app.

It should be obvious that I came up with “bookmarks and other stuff read in style” after I landed on the name Boris, so you’re probably asking yourself: How did you come up with the name Boris?

Well, I’m glad you asked! I asked GPT-4o mini a simple question: “Who invented the highlight marker?” I was genuinely curious, so the answer it gave back to me had me glued to the screen in fascination: It was invented by a Russian-born American, some sort of big-shot that probably had to deal with lots of important documents. His name was Boris G. Ginsburg. I wanted to learn more, so I’ve hit it with the most dreadful of follow-up questions: “Source?”

Turns out it was a complete lie! A hallucination, as the cool kids would call it. It wasn’t invented by Boris at all! What a sham!

After laughing my ass off for 5 minutes, I decided to stick with Boris, since it encapsulates the nature of this little experiment so perfectly.

All of Boris is vibed. All of it.² I didn’t write a single line of code. I didn’t even read a single line of code, except by accident. There are plenty of hallucinations in the code, and potentially in the UI too. Don’t expect all the things to work. Don’t expect things to be done in the most perfect or correct way. Like all LLM output, it is hopefully somewhat useful, somewhat entertaining, and somewhat coherent. But it should be taken with a large grain of salt.

Why Build It?

Now to the second part of the question: Why build something like Boris at all? Don’t we have reading apps already? Don’t we have nostr clients already that can do long-form, highlights, and other stuff?

Well, yes. But all the reading apps suck. And none of them are nostr-native. And I wanted to build my own reading app that sucks, hence: Boris.

They all suck in their own way, but there’s one thing that they all have in common: they are walled gardens. Once you start using one of them, you can’t leave. Your data (read: your highlights, lists, annotations, reading progress, etc) is locked inside the app. You can’t take it out. And if you can take it out, you can’t do anything useful with it.

Nostr fixes this. (Obviously.) So building a reading app on top of nostr was an incredibly obvious thing to do.

I wanted to build something that won’t go away. With the demise of Pocket (and many other “read-it-later” apps that came before it), the time felt right to build something that lasts. Something that my grandkids can still use, if they are motivated to do so. Something that doesn’t rely on a company, or on ads, or on a central service, or on an API that will inevitably break and eventually disappear. Something that plugs into an open protocol, works on any device, can be self-hosted, etc. In short: something that doesn’t beg for permission.

Two Weeks (tm)

What started as a Demo Day experiment quickly became an obsession. After the demo (which worked, by the way, miraculously), I went back at it and did more prompting. And more prompting after that. Next day? More prompting. I couldn’t stop. I was obsessed.

I quickly realized that I have a problem and what I’m doing is incredibly unhealthy, so I did what any sensible person would do: I doubled down. I neglected sleep, I neglected food, I neglected social relationships (read: scrolling my nostr feed), pursuing one thing and one thing only: building a reading app that I would actually use.

I gave myself two weeks. And after the two weeks had passed, I gave myself one more. I became the personified “just one more prompt” bro. In hindsight, a timespan of 21 days was the perfect timespan for this experiment.

Just one more prompt, bro

LLMs are amazing. Coding is actually fun again! You think of something, you prompt it into existence, and 9 times out of 10, the output is actually usable. Not perfect, but usable. And once you have something usable, by the force of a thousand iterations, you can actually make it good. Not perfect, but good.

As an eternal perfectionist, I’ve always struggled with shipping stuff. Whether it’s software or essays, there’s always one more thing to fix, one more thing to improve, one more thing to re-do so it’s just a little better. I got stuck in the “just one more prompt” loop of doom for longer than I’d like to admit. Way past midnight, trying to convince myself that this one prompt will finally fix it.

So while LLMs are amazing, they’re also hell. For me, at least—or I guess for any perfectionist, for that matter. LLMs are great if you just go with the flow and run with whatever they put out. But if you want to have it perfect—exactly the way you want it—you’re gonna have a bad time.

Maybe all of these issues will be fixed one day. I’m sure that we’ll have better models, larger context windows, better long-term memory, and a myriad of other improvements very soon. And maybe we can just point one of these giga-brain models to our old code bases and simply go abracadabra, please fix everything, and it will. Maybe. Or maybe not. Whatever the case may be, LLMs are amazing tools—if you know how to use them. They allow you to do things, and do them quickly.

Midcurve Models

I’m sitting at the doctor’s office, waiting. The median age of the room is probably 82. I’m not that old yet, but in internet terms, I’m “get off my lawn” old. I grew up in the golden age of the internet: the age of the “electronic superhighway”. The age of LAN parties, bulletin boards, IRC chats, newsgroups, and rotating skull aesthetics. An age before the internet turned dystopian; an age that cherished freedom, connection, and openness.

Don’t get me wrong, there are parts of the internet where this stuff still exists. But it is not the norm. The norm is an algorithmic hellscape that is parasitic on your mind, your attention, your whole being. The norm is being bombarded by things that you don’t want to see. The norm is to be manipulated by forces that you don’t understand. That nobody understands, I would argue. The norm is begging for permission to do stuff: watch a video, read an article, release an app. Fuck the norm. Let me do stuff. Let me read stuff. Let me create highlights. Let me ship an app in exactly the way I want to ship it. Get off my lawn.

Back to Boris: Building it was a joy, most of the time. I had a lot of fun adding little features here and there. Features that I always wanted to have in a reading app. Features such as swarm highlights, TTS, reading position, and so on. It was also fun to read stuff and to create highlights. Oh, so many highlights!

On the other hand, and to my previous point, I wish I hadn’t added so many features. Stuff gets worse when it gets bigger, and that’s doubly true for code bases vibed by LLMs. Small and simple is the way to go, so that stuff remains understandable, for both you and contextwindow-brain.

Speaking of context windows: one of the most frustrating things about LLMs (and humans, for that matter) is that they forget. Don’t get me wrong, death and forgetting things are an incredibly important part of life, adaptation, and survival. However, the fact that each agent has to learn everything about your codebase from scratch every time the context window clears is incredibly frustrating. That’s how old bugs and various regressions creep in all the time, because the models always regress to the middle of the bell curve. As mentioned before, for a left-side of the bell curve builder like me, that’s hell.

Old Man Yells at Claude

So we had some conflicts, Claude and I. Merge conflicts, sure, but also good-old arguments about how to do things.

Anyone who ever vibe-coded anything will know that these models are opinionated. If you don’t specify the language, it’s gonna be JavaScript. Not because JavaScript is the best tool for the job, but because it’s smack-dab in the middle of the bell curve. The internet is full of JavaScript. Everyone knows JavaScript. And because these models are the statistical mean of the output of everyone, it’s gonna be JavaScript. I fucking hate JavaScript. (Boris is written in JavaScript too, of course.)

While you can get quite far with writing specs for your stuff and being explicit about how you want to build things, the gravitational pull of mid-curve mountain is a constant danger. When unchecked, all models will inevitably regress to the mean of Reddit plus GitHub plus StackOverflow, which isn’t necessarily what you want when you’re writing opinionated software. No amount of “You’re absolutely right!” will change that fact.

So, what to do about it? According to some people, it’s best to threaten the models with death and destruction, or worse. While I had my fair share of ALL CAPS yelling during the development of Boris, I want to suggest that a different approach might be more fruitful.

Dialogical Development

If you know me just a little bit, you’ll know that I’m a huge fan of John Vervaeke. He’s a smart cookie, and lots of the things that he says make a ton of sense to me. One of those things is that dialogue is absolutely fundamental to our cognition and being (to existence itself, actually), and that dia-Logos and distributed cognition are more powerful than trying to have your way. The sum of the whole is larger than its parts and all that.

So now my approach to vibe-coding is as follows: before I do anything, I enter into a dialogue with the LLM. It doesn’t matter what it is. Whether I want to fix a bug, add a feature, document something, or start a new app from scratch. I always lead with a question. (Oh, how Socratic!³)

“How are we fetching bookmarks again?” “Could we improve that in some way?” “How would you go about debugging this?” “Is it worth adding that feature, or would it make the code base too complex?” “Are you sure?” “Anything we can easily improve?” “How would you implement it?” “Can you summarize the spec for me, and explain how our implementation differs from it?” And so on…

The reason why this works, I think, is that you build up context and shared understanding before you dig in and do the work. And sometimes your dialogical partner will actually make a great point, or tell you something that you didn’t consider yourself. Win-win.

Vibe-Learning

I’ve learned a lot in these last three weeks. I didn’t plan on it, since all I wanted to do was vibe and have fun. However, after getting into the nitty-gritty details of long-form content, highlights, bookmarks, and plenty of other stuff, I learned NIP numbers and kind numbers by sheer osmosis. In fact, I saw more nips in the last couple of weeks than even the most industrious Saunameister.⁴

Vibe-coding might remove you from writing code, but it doesn’t remove you from the subject matter. You still have to understand how stuff works, more or less, if you want to efficiently guide how the project should evolve. I guess this was always true, as anyone who ever worked in software development can attest to. If your project or product manager has no idea how the underlying tech works, there is little chance of the thing flourishing. And as a vibe-coding purist, i.e., as someone who never looks at the produced code ever, you’re effectively a product manager, not a coder. The distinction matters, since you’re operating on a different level of abstraction. Again, you’ll still have to learn and know some underlying technical details in order to make sense of the various functionalities of the product you’re building, but you don’t have to care about every little intricate detail. You’re not as wedded to the parts since you’re higher up in the abstraction hierarchy, and thus lower-level parts become interchangeable. I don’t care if I use applesauce or NDK, for example. And I don’t want to care. If it gets the job done, great. I’m not wedded to either.⁵

Surprisingly, there’s another thing I learned: How to prompt, when to prompt, and learning the difference between what is viable and what is vibe-able.

Always Be Prompting

In my opening talk for the YOLO Mode cohort, I encouraged everyone to stop thinking in terms of the traditional MVP (minimum viable product) metric and start thinking in terms of what is easily vibe-able, i.e., what is just a prompt or two away. Minimum vibeable product.

LLMs are fantastic at reading specs and translating one thing into another. Castr.me, for example, was basically created in one prompt. All it took was to feed it the Podcasting 2.0 spec, and tell it to build a thing that translates a nostr feed into a Podcasting 2.0 compatible RSS feed. That’s it. Incredibly vibe-able.

It’s obvious to me that there are a million little things like this that could be built incredibly quickly, require very little maintenance, and are immediately useful. I hope that me writing about my experiment will encourage others to just go and build those little things, as imperfect as they might be at first. I’m not saying that everything is easy, and I’m not saying that it isn’t work. But it is a different kind of work than coding used to be historically. The #LearnToCode hashtag is officially dead; #LearnToVibe is the new shit, and it’s incredibly easy to learn. All you have to do is to do it a lot.

My routine used to be something like this: Get up, go pee, take a shower, brush teeth, unload the dishwasher, make breakfast, eat breakfast, make coffee, load the dishwasher, clean up the kitchen, sit down to do some work.

Now it’s something like this: Get up, write a prompt, go pee (sitting down, so I can write a prompt on the phone in case something comes to mind), take a shower, have a shower-thought that can be turned into a prompt (obviously), fire off said prompt, brush teeth, fire off another prompt, make breakfast, crush some more prompts, see them driven before me (while I eat breakfast), and hear the lamentations of Claude. You get the idea.

In addition to the above, I made extensive use of the vibeline, which is to say, voice memos. I like to go on walks a lot, and I always have a recording device (read: my phone) with me. I try to minimize my phone use when I’m out and about, but when an interesting thought (or prompt idea) hits me, I’ll pull out my phone and record it. It works surprisingly well, and the way I’ve built it is that if I say certain words, certain LLM pipelines will trigger—pipelines that summarize the idea, create tasks from what was said, and draft prompts based on the thought that was captured.

The idea is simple: I want to be away from the computer as much as possible, while still doing useful “computer work”. The beautiful thing about vibe-coding is that you don’t have to sit in front of the computer and stare at the screen necessarily. To me, vibe-coding is entering into a dialog with the LLM and with the product you’re building. Interfacing with said dialog can take on many forms, not all of which involve a screen. At least half of my prompts are voice-based as of today, and I don’t even have to squint anymore to see where all of this is potentially heading.

Imagine the following: you walk along the beach, speaking into your phone, as if to a friend. You explain in a long-winded and rambling way an idea for an app that you had in the back of your mind for a long while. Maybe your friend responds sometimes, asking questions, pulling the idea out of you, refining it further. You sleep on it and return to a summary of the dialogue the next day. In addition to the summary, a prototype of the app is deployed, which you can try on your phone. You play around with it for a couple of minutes, and while some things are as you imagined them to be, a lot of the other parts still need work. You finish your coffee, go out for a walk, and talk to your friend again. You explain what the prototype got right and what still needs work, and as you’re chatting, changes to the app are deployed live, in a way that allows you to immediately review and react to said changes. After a couple of days of throwing out ideas, iterating on what works, and throwing away what doesn’t work, you’re happy with the result, and you share it with your friends and the world. The feedback from your trusted circle is automatically being picked up and leads to the next iteration of the app, and so on. Dialogical Development. A beautiful thing.

We’re obviously doing all that right now, but it’s not very streamlined and accessible yet. However, the scenario I’m describing is far from science fiction. It is how I developed Boris in large parts, and efforts like Wingman will make what I’ve been doing even easier. Add an automated way to feed screenshots,⁶ videos, and selective log output back into the multi-modal coding agents, and we have a beautiful iterative loop going. All while walking on the beach.

Screenshots and Logs

Speaking of multi-modality: one thing that we aren’t doing enough of yet is feeding screenshots back into the agents. Most models are multi-modal, and using screenshots to fix UI issues is thus an incredibly obvious and easy thing to do. Building upon the scenario sketched out above, the flow would be as follows: you take a screenshot on your phone, quickly annotate it if necessary (drawing a red arrow with your finger somewhere, or adding some quick text), and hit save. Your coding agent automatically picks it up and fixes the issue accordingly. No prompt required, as the screenshot is the prompt.

I took hundreds of screenshots during the development of Boris. Here’s one of the first ones, before the rename:

Eugh. Brutal. However, the beautiful thing about this screenshot is not the UI, or the lack of functionality, or the background tabs, or the “Relaunch to update” notice that I’m ignoring. It’s the debug output that’s shown in the console.

One of my default prompts is: “Add debug logs to debug this. Prefix the debug logs with something meaningful.” I have about two dozen of these default prompts (mapped to macros so that I don’t have to type them), and they’ve proven to be incredibly useful for specific things like writing changelogs, making releases, and yes, debugging.

A picture is worth a thousand words, and if the picture contains a couple lines of useful debug logs, all the better.

Overdoing It

One of the most difficult things in life is to know when to stop. To know when to step away, to just let it be. I’m exceptionally good at overthinking things, which in turn means that I’m exceptionally bad at stepping away; stepping out of my own way, even.

I regret many a prompt when it comes to Boris. Some things worked beautifully in the past, and now they don’t work as beautifully anymore. Some things don’t work at all anymore, and the reason for them not working anymore is me overdoing it. Staying up until 3 am, locked in, convinced that my “just one more prompt bro” story arc will bear fruit eventually, adding complexity upon complexity, confusing both Claude and myself.

“I think I overdid it,” I whisper into the prompt window. Bloodshot eyes, cigarette in hand, seriously contemplating making the drive to the gas station to get a bottle of vodka. “You’re absolutely right,” Claude responds.

Of course I’m right, and I should’ve known better. I should’ve spec’d it out better, I should’ve reduced the scope better, I should’ve tested things better (or at all).

Alas, it is what it is. My hope was that I would be able to produce something that isn’t half broken, but now, reflecting back on it, I realize that I’ve just added to the AI slop and made everything worse.

…or have I?

The Last Mile

The last 5% are the hardest. Fixing the bugs. Getting it right. Polishing. Pushing it over the line. That’s true for software development, it’s true for writing, it’s true for art. It’s true for anything, really.

When it comes to Boris, I haven’t even entered the last mile yet. I’m still walking through the trough of disillusionment, and I intend to dwell in said trough for a little while longer. But I’ll be back, as one of the most famous Austrians so eloquently put it. After all the grass has been touched and all the iron has been pumped, I’ll be back. And I intend to fix the bugs, do the polishing, and release version 1.0.0 eventually. And 1.0.1 soon after that. And 1.0.2 quickly after, and so on. But not right now. There’s only so much “you’re absolutely right” a single person can bear, only so many hallucinations a single mind can tolerate.

Boris v1 will come eventually, just like Arnie came eventually.⁷ But for now, it will remain on version 0.10.twenty-something.

Conclusion

Boris is a thing now. 21 days ago, it wasn’t a thing.⁸ Is it a perfect thing? Obviously not. Is it a useful thing? Maybe, to some people. Will I continue to work on it? Maybe, sometimes. It depends.

Boris was 50% experiment, 50% necessity, and 50% therapy.⁹ I enjoy creating things, and for a little while, Boris was my outlet. I created an app, imperfect as it may be. I created a draft for a NIP, as horrible as it may be. I had some ideas and I tried to vibe them into reality, and while I mostly failed, I think that some neat things came out of it.

Maybe some of the features—even the broken ones; especially the broken ones?—will inspire others. I think swarm highlights are really neat. Maybe some of the stuff will get integrated into other clients, who knows.

I think highlights are a fantastic way to discover stuff worth reading, and they’re a fantastic way to rediscover things that you’ve read in the past. I think zap splits are a no-brainer. I think nostr is a fantastic substrate for long-form content. I am convinced that nostr apps can be beautiful, snappy, and incredibly functional. Especially if local relays become the default. I would love for all nostr apps to work in flight mode, at least somewhat.

My wishlist for nostr is long, and with Christmas around the corner… who knows! Maybe we’ll eventually manage to make long-form reading (and publishing!) as fantastic and seamless as it could be. We’re not there yet, but I’ll do my best to remain cheerful and optimistic.

And who knows? Maybe GPT-6.15 will fix all our issues. I won’t hold my breath, but I’m definitely considering doing this 21-day experiment again at some point in the future. Not anytime soon, however. I’ve learned the hard way that there is such a thing as a prompting overdose,¹⁰ and as a way of recovery, I’ll be returning to my regular programming of touching grass and saying GM a lot. And who knows, maybe I’ll create some highlights along the way.

“The money is in the message!” —NIP-61 ↩
This includes any and all commits. I didn’t write a single one of those either. ↩
Socrates was the goat frfr no cap ↩
Fun fact: if you’re really good at Saunameistering you can participate in the world championships and win the Aufguss World Championship like this guy did. ↩
Boris uses applesauce; ants¹¹ uses NDK. ↩
I vibed all this and wrote all this before Justin posted about this insanely useful script and wrote a blog post about it. ↩
If you haven’t seen Pumping Iron yet, you should stop what you’re doing and go watch it. Now. ↩
I made the first commits on Oct 2, wrote the first draft of this on Oct 21, and am now writing this footnote on Oct 31. ↩
“You’re absolutely right! These numbers don’t add up to 100%.” ↩
Turns out I’m not the only one who has to take a break from vibe-coding for sanity-preservation reasons! ↩
ants is the search engine that I built before I started working on boris. I tried to explain my motivation for building it in this video. ↩

He Hanged Himself in the Morning

Fri, 15 Nov 2024 00:00:00 +0000

We may enjoy our room in the tower, with the painted walls and the commodious bookcases, but down in the garden there is a man digging who buried his father this morning, and it is he and his like who live the real life and speak the real language.

Virginia Woolf

My dad killed himself today. He hanged himself in the morning. I’m not sure what to say, what to feel, what to write, or if writing anything is appropriate or useful in the first place. In any case, he is gone now. And what is left are questions and memories, but mostly questions.

When I first heard the news I wasn’t even surprised. And yet I broke down. And cried, and was angry. And sad. And everything in between. I cried for two hours straight, and many hours after that. I’m still crying most days, and I doubt that the sadness will ever go away. I was and am devastated. Not because of him dying, but because of him killing himself.

He was a good man. Imperfect, like all of us are, but with a good heart. He had a good mind too, and I’m afraid said mind is what killed him.

Think of the old cliché about “the mind being an excellent servant but a terrible master.” This, like many clichés, so lame and unexciting on the surface, actually expresses a great and terrible truth. It is not the least bit coincidental that adults who commit suicide with firearms almost always shoot themselves in: the head. They shoot the terrible master.

David Foster Wallace¹

I’m trying my best not to judge or blame my father. I am well aware of the terrible master that is the mind, and am all too familiar with the bottomless pit that is despair and depression. Losing all hope, losing all sense of meaning. Losing the ability to feel or experience joy, or any positive emotion for that matter. A week of this will turn anyone suicidal; a year or two and it’s a miracle if you’re still alive.

And yet it is hard not to judge. Borderline impossible to accept his decision; to accept things as they are now.

The so-called ‘psychotically depressed’ person who tries to kill herself doesn’t do so out of quote ‘hopelessness’ or any abstract conviction that life’s assets and debits do not square. And surely not because death seems suddenly appealing. The person in whom Its invisible agony reaches a certain unendurable level will kill herself the same way a trapped person will eventually jump from the window of a burning high-rise. Make no mistake about people who leap from burning windows. Their terror of falling from a great height is still just as great as it would be for you or me standing speculatively at the same window just checking out the view; i.e. the fear of falling remains a constant. The variable here is the other terror, the fire’s flames: when the flames get close enough, falling to death becomes the slightly less terrible of two terrors. It’s not desiring the fall; it’s terror of the flames. And yet nobody down on the sidewalk, looking up and yelling ‘Don’t!’ and ‘Hang on!’, can understand the jump. Not really. You’d have to have personally been trapped and felt flames to really understand a terror way beyond falling.

David Foster Wallace

Invisible Agony

I guess we’ll never know what went through his head on the day of his death. What invisible agony tormented him. What kind of terror made him jump, what kind of flames were scorching his flesh. He left no suicide note; no last words; no explanation. No paragraphs that might provide insight or closure. What we do know is that it wasn’t a snap decision, as he went through the trouble of driving to another city to leave the family dog at a safe place. And after this small act of kindness, he drove back to put his neck through the noose.

It’s hard to put into words what kind of devastation lies in the wake of a suicide. Psychologically speaking we can deal with natural disasters like hurricanes and earthquakes, or straight-up accidents that can and do happen, especially if there is no one to blame. That’s the crux of the matter, isn’t it: blame.

We want to blame someone, and we’re unsure whom to blame. We might want to blame the hand that killed the person—until we realize that we can’t blame killer and victim at the same time; and blaming the dead is futile anyway. Thus what is left but to blame ourselves?

So we start the agonizing process of asking ourselves the question of what if… What if our relationship would’ve been better? What if I had called more often? What if I would’ve known about his financial troubles? What if I would’ve talked to him about my own guilt and existential angst, and what helped me through my darkest times? What if?

I’m sure that everyone close to him is asking themselves these and similar questions, along with the eternal one that is: Why?

Why kill yourself when you have so many things to live for? Why leave five kids without a father, especially if two of them aren’t adults yet? Why kill the grandfather of your 6 grandkids, one of which you haven’t even met? Why, why, why? And here it is again: the passing of blame.

I understand people who kill themselves, strangely enough. I think anyone who has personally been trapped and felt the flames does, as David Foster Wallace so beautifully put it. But it’s hard to fully accept suicide if it’s that close to home.

That’s the issue, I think. The suicide of my father cuts very close to the bone. My father is part of me and I am partly him. I’m not too different from him, in fact. He was extreme in his approaches; I am too. He didn’t care much for material wealth or money; just like me. He was no stranger to depression; just like me. He was a perfectionist, and I am too. He was fearless and often times reckless, and I guess I can be all of that as well.

I have my father’s mind and temperament, and I fight with it every day. I fight the monster that is the terrible master as best as I know how, trying to keep things at bay with sheer discipline and willpower.² I know that he managed to do the same for many decades, but in the end the monster won. Or did it?

Did my father struggle with depression, or did depression struggle with him? Did the monster kill my father, or did he kill it? Norm Macdonald once quipped that people don’t lose their battle with cancer; if anything, it’s a draw, because if the person dies the cancer dies too.³ It’s all the more poignant because it was cancer that killed him, the very cancer that he was already aware of when he made said quip.

When it comes to cancer, especially late-stage cancer so advanced in its progression that all hope for betterment and remission is surely lost, most of us agree that prolonged and unnecessary suffering is inhumane. We allow people to die. In some cases we even allow them to actively kill themselves, even assist them in doing so. We call anxiety and depression the “cancer of the mind,” and rightfully pose comparative questions to try to make sense of it all. Questions such as: “If I had cancer, would you force me to live out the rest of my days in pain or would you help me find rest?”⁴

But depression isn’t cancer, which is why we don’t consider suicide a natural death. We don’t help people to kill themselves when they are depressed—we try to help them get better. We try to help them get rid of the monster that is the terrible master, by any other means but death. And sometimes we fail. Often, really.

I keep asking myself this question: When it comes to suicide, does the terrible master shoot the person, or does the person shoot the terrible master? Does one win over the other, or is it a draw?

Whatever the case may be, the monster that killed my father is alive in me. It lives on in me; in my mind, in my conscious and subconscious. I don’t intend to feed it, but it is there nonetheless. And I’m afraid it will always be there.

There are two things we know for sure about suicide: it is neither rare nor simple. More people die of suicide than of homicide and natural disaster combined.⁵ There are no simple answers, no simple explanations, no simple way of making sense of it. Reasoning stops, and with it, the heart stops too. That’s the whole point of killing oneself, and the conundrum of it all. The suicidal person tries to stop her mind from tormenting her being, and in the process stops her heart. But who exactly killed whom?

It’s precisely this paradoxical nature of suicide why we often speak of depression as a disease, as something that can and must be cured, like the flu or a headache or a viral infection—or cancer, as alluded to before. It’s easier that way; because it allows us to say that depression is the killer. An external agent, a disease that we don’t have much control over. We move the killer from a “who” to a “what.” But where does it stop? And where does the person end and the monster start? What is circumstance, and what is agency? How much say do we have over what we think, what we do, and what we feel? How much agency can we exert when it comes to constructing meaning from experience, to say it in David Foster Wallace’s words? How much control do we have over our thoughts?

How frail the human heart must be—a mirrored pool of thought.

Sylvia Plath

During the financial crisis of 2008, suicide rates increased by roughly 5% in Europe and America.⁶ More men killed themselves than women, as they always do.⁷ Who killed those men? What killed those men? Are they responsible for their suicide? Did they truly kill themselves, or did the financial crisis kill them? Was it depression? And if it was depression, was it the psychological one or the economic one? Is there even a difference?

Questions over questions… The reason why we assign blame in the first place is because of our steadfast conviction that it could’ve been different. We believe that there is a scenario where the person could still be alive—if only this or that would’ve happened instead. If only we would’ve known. We would’ve helped; we would’ve intervened. If only…

Blame

Blame and agency are intimately intertwined, of course. That’s why we differentiate between premeditated assassination, manslaughter, the death penalty, and murder in the heat of the moment. We lack such differentiation for suicide. The person is dead, and some other, bigger force, won.

That’s precisely it, isn’t it. We aren’t a uniform blob; we aren’t even one person. There are forces at play, most of which we don’t understand very well. Some of them live inside of us, some shape us from the outside. We have stories about these forces; we call them Love and Hate; God and the Devil; Happiness and Depression; Good and Evil. “These forces,” to quote David Mitchell, “begin long before we are born, and continue after we perish.”

The paradoxical nature of suicide makes this abundantly clear. There’s a part of you that doesn’t want to live anymore; there’s a part of you that is suffering. But there’s a part of you that doesn’t want to die, that is afraid of death; a part that is contemplating, that is afraid to jump, that wants to get better. A part that is glad that someone stopped you, that someone talked you off the ledge. A part of you that is open to being talked off the ledge in the first place. There are forces inside you that pull you in one direction and others that pull you away from it; away from the abyss. The suicidal mind is possessed by the angel of death, a force that goes against life itself. But your heart is immune to this possessive force; the heart can’t make the heart stop beating. The heart can’t stop itself. Only the mind can stop itself.

Our hearts and minds are shaped by forces, internal and external—visible and invisible. The story of history is the story of the mind trying to understand these forces. And one might say that the story art is the story of the heart trying to understand these forces.⁸

We used to call them spirits. And we still use this word today, i.e. when talking about the spirit of a team, the elusive force that makes the members of a group want said group to succeed. Life itself has such an elusive force. We call it “Lebensfreude.” Joie de vivre, a zest for life. An inherent willingness to live.

Life is life-affirming, and it has to be. If it wouldn’t be, it would self-destruct. Is it any wonder then, that most religious thought came to the conclusion that suicide is against the spirit of God, the creator, the eternal life force itself?

Most religious thought answers the fundamental question of life, “to be or not to be,” in the affirmative. God created the heavens and the earth, and all creatures, and light and darkness, and women and men. And it was good. Very good, even.

Every day above earth is a good day.

Ernest Hemingway

Suffering

Angel on the left shoulder, devil on the right. “Jump!” shouts the devil. “Please, reconsider,” whispers the angel. “It might not feel like it right now, but you will be deeply missed—and you will get better.” Who do you listen to? Do you even have a choice? Can you decide to pay attention to the one, but not the other?

Again, the religious answer is a definitive yes. Yes, you have a say in the matter. Yes, you can decide to orient towards the Good, the True, and the Beautiful. Yes, you have Free Will. Not your mind, not your heart, but you yourself, the True Self that is behind it all; the higher self. The eternal self.

I never was a religious person, and I’m not sure if my father was either. He grew up in a religious household and went to church from time to time, but I doubt that he took religious teachings seriously. I do now.

I do now because religious thought is not optional, and neither is religious orientation. An orientation towards the Goodness of Life; towards the Beauty of Being itself. In his commencement speech, David Foster Wallace mentions that “the only thing that’s capital-T True is that you get to decide how you’re gonna try to see it.” I now believe that this is true for suffering as well. You can decide to see it as suffering, or you can decide to see it as Grace.

Meaning and suffering are intertwined, and both are axiomatic for existence. “Can’t derive an ought from an is” and all that jazz, with some “cogito, ergo sum” mixed in. There is no experiencing without meaning; no acting without suffering. To exist as a self-conscious, experiencing, acting agent in this world you have to believe that your existence and existence itself is meaningful, that existence is preferable to non-existence. If you do not believe that, you will unavoidably kill yourself and others. That’s the cold-hearted logic of it all.

But the universe isn’t cold-hearted, because we are part of it. And we care. About the living, and the dead. About our own lives and the lives of others. About life itself. About what it means to experience it, good and bad.

To be positive at all times is to ignore all that is important, sacred or valuable. To be negative at all times is to be threatened by ridiculousness and instant discredibility.

Kurt Cobain

Positive and negative. Yin and Yang. The sacred and the profane. That’s what life is, an amalgamation of seemingly paradoxical opposites. We push the boulder up the hill so it might roll down again. Rinse and repeat, for all eternity.

Albert Camus understood that the question of “why” is THE fundamental question. Shakespeare did too, obviously. Why do anything at all? Why keep on living? Why be, if you could also not be?

According to Camus, there is but one truly serious philosophical problem and that is suicide. “Judging whether life is or is not worth living amounts to answering the fundamental question of philosophy.” I think that Viktor Frankl would agree.

I was always bothered by the English translation of Viktor Frankl’s book. The German title is not “Man’s search for meaning”—far from it. It’s “Say Yes to Life Anyway” (“… trotzdem Ja zum Leben sagen”). It’s an ode to the right psychological stance to life, which is the religious stance: say YES to Life, despite of your suffering. Say YES to existence, despite of the injustices and horrors and the malevolence of this world. Say YES to it all, even if you think it’s moot and meaningless and stupid and terrible. Say Yes, no matter the situation. Even if you’re imprisoned in a Nazi concentration camp. Say yes to Life. Say yes to being. Say yes, and be.

“To be or not to be” is so obviously the fundamental question to be asked, and I believe that is why suicide is so brutal, so destructive to the living, so devastating to those that still are. Because suicide is an answer to this question. The act itself is an affront to being itself, and an attack on the axiomatic worldview that is shared by the living. It is a deliberate assault on the one thing we all share: conscious experience, the qualia of what it means to be.

Courage

If someone throws themselves on a hand grenade to save others from the impending doom of the inevitable explosion, we applaud them and give them the highest honors, even though they technically killed themselves. Why don’t we do the same for someone who takes action to save himself from impending doom?

I believe the answer lies in our intuitive analysis of who killed whom. In the case of the hand grenade, the Higher Self decides to sacrifice the body to save others. The man who throws himself on a hand grenade doesn’t kill anyone else. His spirit is very much intact. In the case of suicide, the tormented mind chooses to kill mind and Self alike, to end the suffering of both. The man who kills himself, kills his Self. His spirit is broken. “It is murder and a corpse is left behind, no matter who has killed whom,” is what Jung had to say on the matter. “The man who kills a man, kills a man,” wrote Chesterton. “The man who kills himself, kills all men. As far as he is concerned he wipes out the world.” That’s why dealing with suicide is so hurtful. Desperation, hopelessness, homicide, and genocide—all mixed into one.

Paul Tillich tells us that “all things are rooted in a yes and a no,” including being itself. That’s why faith and hope are paramount—and faith and hope are indistinguishable from courage. The Courage To Be, in other words, is the courage to say YES to the fundamental question of being, and with it open up to the process of becoming—suffering and all.

Suicide ends the process of becoming, and while it kills the tormented mind that is the terrible master of the suicidal, it kills the heart too, with all its openness, and Love, and potential. Suicide kills the future. And with it the hope that things could be better. It is an absolutist act, implicitly claiming final knowledge of what is yet to come. I know what’s ahead—I know what Life / God / the universe has in store for me—and I know that it’s not worth the trouble. Suicide claims that striving towards betterment is not worth it; the struggle is not worth it; life itself is not worth it, which leaves those who are still living in a conundrum: What if they’re right?

What if they’re right?

What if those who kill themselves are right? Maybe life isn’t worth living after all. Maybe the struggle isn’t worth it. Maybe it is all meaningless, senseless, and—in the final analysis—futile. Maybe the whole Spiel is not worth the trouble. Maybe it’s better to end it all; to end the suffering.

Suffering. That’s what the question of suicide boils down to; and the question of life and being and existence for that matter, which are the questions of the religious domain.

The essence of religious thought is that you can’t escape it, only transcend it. You can not and must not escape into Nirvana. The Western tradition teaches you to embrace it fully and with an open heart. And by embracing your suffering, and by carrying your cross wilfully and with grace, your burden will lose its weight.

The Eastern tradition encourages you to detach from your desires so completely, and live in the eternal now so fully, that the gap between what is and what you think should be closes, and with that your suffering fades. After all, it is this gap—the gap between ought and is—that creates our suffering. And paradoxically, or maybe obviously, this gap needs to exist for any acting agent. This is why Life is suffering, and suffering is unavoidable.

Religions figured all this out a long time ago, and they all came to the same conclusion: don’t try to escape it. Every attempt to escape it is misguided. Being is intrinsically good. Life is intrinsically good. God is great, and trying to escape the suffering that is being is wrong. It is intrinsically wrong. Even if the suffering is unbearable; even if it is maximally painful. Spiritual growth is learning how to bear the unbearable; and do so sincerely, from the heart.

If only we try to live sincerely, it will go well with us, even though we are certain to experience real sorrow, and great disappointments, and also will probably commit great faults and do wrong things, but it certainly is true, that it is better to be high-spirited, even though one makes more mistakes, than to be narrow-minded and all too prudent. It is good to love many things, for therein lies the true strength, and whosoever loves much performs much, and can accomplish much, and what is done in love, is well done.

Vincent van Gogh

Love

Love is the answer. Not reason, not logic, but Love. Love for yourself, love for others, and love for being itself. True, unconditional Love. If you love someone unconditionally you accept them as they are; if you love the underlying ground of being unconditionally, you accept things as they are—including yourself. Loving fully implies forgiving fully, and that’s the hardest thing of them all. Forgiving others. Forgiving God. Forgiving yourself.

The thing that matters are others.

Robin Williams

Erlich Fromm tells us that “the right self-love and the love of others are interdependent”. I believe that this is true for the right love of being itself as well. Maybe that’s what the Trinity represents. A loving relationship to yourself as the son, to your father that brought you into this world, and to the transcendental that is between all things. The holy ghost, the spirit of existence itself. My heart tells me that all of that is true; my oh-so-skeptical and oh-so-reasonable mind has trouble accepting such lofty propositions.

“Man shall not live on bread alone,” according to Jesus, “but by every word that proceedeth out of the mouth of God.” One could even argue that man can not live on bread alone, because man would starve spiritually due to the lack of a transcendental guiding principle, and thus eventually kill himself. I think that’s what Nietzsche meant when he said that life without music would be a mistake. We need to be reminded of the transcendental beauty of things—no, of existence itself—and music is the most powerful and penetrating reminder we have.

That’s why music isn’t optional; and art isn’t optional; and beauty itself isn’t optional. That’s why “beauty shall save the world,” as Solzhenitsyn so boldly claimed. I understand that now.

How many times have people used a pen or paintbrush because they couldn’t pull the trigger?

Virginia Woolf

But understanding all that might not be enough. Picking up a pen, paintbrush, violin, guitar—or whatever you use to create something beautiful—might not be enough. The just quoted Virginia Woolf wrote many beautiful things, and yet she eventually killed herself.⁹ As did Sylvia Plath, and Vincent Van Gogh. Kurt Cobain and Robin Williams killed themselves too, most famously. And Hemingway as well, by shooting himself in—you guessed it—the head. Even David Foster Wallace, who so poignantly talked about the old cliché of “the mind being an excellent servant but a terrible master,” the same David Foster Wallace who so vividly painted the picture of a burning high-rise with you being trapped at the window—that very David Foster Wallace who gave one of the greatest commencement speeches of all time—killed himself. He hanged himself, just like my father did.

Reasons

It’s easy to reason yourself into suicide, especially if you are depressed. The world is terrible, your life is terrible, other people are terrible, and to top it all off you yourself are terrible too. Why keep on living? The problem with this line of reasoning is that it comes from the mind, not the heart. In Jung’s words, if you are ever suicidal you should “be sure first, whether it is really the will of God to kill yourself or merely your reason.” Because “the latter is positively not good enough.”

There is a reason why we say “follow your heart” and not “follow your mind” when we are having a hard time making a big decision. Even in today’s day and age—an age dominated by reason and logic; an age that is drowning in mind and starving for heart—we encourage others to listen to their gut feeling, to do the thing that they know in their heart is right, even if “objectively” and “rationally” one can find a million reasons why it might be “wrong” by any rational measure. Why do we do this?

We do this because we intuitively know what David Foster Wallace so beautifully explicated. We deeply understand the old cliché, that the mind is an excellent servant but a terrible master. I think that’s why religions put so much emphasis on grace, forgiveness, humility, and Love. All these things put heart first, mind second. Our society has this backward, which is at least partly responsible for the suicide epidemic, I believe. We over-emphasize mind and under-emphasize heart, creating terrible masters and monsters alike. “Almost nobody shoots themselves in the heart,” to rephrase David’s remark. After all, the monsters we fight are usually in our heads, and not elsewhere. A heart might be longing or cold or confused or broken, but it isn’t a house for demons and monsters. It is obvious to me that those who decide to kill themselves don’t follow their heart; they do the opposite. They follow the terrible master to the ultimate conclusion, are convinced that he is right, and he is convinced that ending it all is the right thing to do.

The suicidally depressed don’t think of it this way, of course. All they want to do is put an end to their suffering. They believe that their suicide is justified, and maybe in some cases, it is.

But who can decide such a thing with any resemblance of authority? Who but that which we call God? What mortal soul has the audacity to define the threshold that puts a person into the “category of people that have permission to kill themselves?”¹⁰ How much suffering is too much suffering?

Maybe that’s why religions are so absolutist when it comes to suicide. It’s a threshold problem, just like the problem of free speech. What pain is unbearable, and by what measure? And what if the thing that is responsible for said measurement is faulty? What if your “suffering sensor” is broken?

Pain

“It’s beautiful when the pain subsides,” is something my father used to say a lot. Every time he was doing sports or something else that would bring him to his physical limits—bones hurting, muscles cramping—that one line was his go-to rationalization to keep going, to push even harder. It doesn’t matter if you’re hurting now; just imagine how amazing it will feel once the pain goes away. I hope it did, Dad. I hope your pain went away in the end. I hope you’re feeling the bliss that you were always after.

My father killed himself on October 15, 2024. He hanged himself in the morning. He left behind his wife, my mother, five children, six grandchildren, two brothers, and a dog. I’m not sure what to say, what to feel, what to do, or what to think. I’m not sure if it was the terrible master that ended him, or if it was my father ending the terrible master, forcing a draw. There was a battle, and it’s hard to say who won and who lost. In any case, he is gone now. I’m left with sadness, questions, and wishes.

I wish he could’ve met my daughter. I wish he could’ve known how much I loved him. I wish I could’ve had the chance to talk to him one last time. I wish I could’ve told him that he was a good dad. No, a great one. I wish we could’ve had a proper conversation. Not only son to father, but father to father, soul to soul, and tormented mind to tormented mind. I think I could’ve helped him. I wish he could’ve known that I was there too, in the burning building up top, about to leap out of the window. I wish I could’ve told him that the flames might be an illusion; that there is a chance they eventually subside.¹¹ I wish I could’ve told him that there is hope; that there’s a path to feeling better.

It pains me to know that my father was in such torment that he decided to end it all. I didn’t know. Not really.

Peterson once said, “If there are people around you that love you, it’s pretty likely that they will never really recover [from your suicide].”¹² I loved my father, imperfect as he was. I wouldn’t be here without him, and I wouldn’t be the person I am today without his guidance, teachings, and love.

Call your parents. Even if your relationship is complicated. Even if you haven’t spoken for a long time. Even if they are far away. Call them, and tell them that you love them. They might need to hear it. More than you can imagine.

I love you dad. I miss you dearly. May you rest in peace.

If you are considering suicide or self harm, please get help now.

“And the truth is that most of these suicides are actually dead long before they pull the trigger. And I submit that this is what the real, no bullshit value of your liberal arts education is supposed to be about: how to keep from going through your comfortable, prosperous, respectable adult life dead, unconscious, a slave to your head and to your natural default setting of being uniquely, completely, imperially alone day in and day out.” ↩
I am aware of the irony; the mind trying to keep the mind at bay. I am trying my best to “make the leap into the heart” - I’m trying my best… ↩
“That’s not a loss. That’s a draw!” —Norm Macdonald ↩
Izzy Pfutzenreuter posed this question in a YouTube comment under this video, after stating the following: “I’ve been in therapy for years, both with a psychiatrist and a clinical psychologist. I still don’t see a future for myself. I’m tired, I’m bankrupt, I can’t live normally and I just can’t get myself interested in anything these days.” ↩
I learned this from Dr. David Goldbloom, who made me look up the number of people that kill themselves as well as the number of people that are killed by others. Both statistics are sad, but the fact that the number of suicides is so much higher was surprising to me. We seem to be living in relatively peaceful times when it comes to the external world, but when it comes to the internal world… not so much. I mean… suicide is the biggest killer of men under 45. That stat alone should give you pause. ↩
“In the recent Global Financial Crisis (GFC) of 2008, suicide rates increased by 4.2% in 27 European countries and by 6.4% in 18 American countries, with more marked increases noted for men.” ↩
“The suicide rate among males in 2022 was approximately four times higher than the rate among females. Males make up 50% of the population but nearly 80% of suicides.” ↩
And some would say that the story of myth and religion is the story of civilizations trying to understand these forces, and I would agree. ↩
Even her suicide note is beautifully written. ↩
Quote from The Bridge, a 2006 documentary film spanning one year of filming at the Golden Gate Bridge, which is the world’s most popular suicide destination. ↩
Gravity isn’t; the concrete floor won’t. ↩
“You don’t have to carry the weight of despair alone.” - A message to someone with suicidal thoughts. ↩

Speaking Freely

Mon, 25 Mar 2024 00:00:00 +0000

I was speaking to a friend recently and the problem of free speech came up. I shouldn’t call it a problem, actually, as it is the solution to a problem. The problem is a perennial one, which is another way of saying a really really hard problem, one that we will continually face, for as long as we’re human.

The problem is this: what is the right problem to solve? It’s a problem about problems, which is of course a meta problem. We are, as homo sapiens, a thinking organism. Both collectively, as well as individually. Thinking is what defines us, but it isn’t just thinking for thinking’s sake; it is thinking to figure stuff out without having to get killed in the process all the time. A less violent form of evolution, if you will.

The Ancients placed a great deal of emphasis on attention. Attention is plagued by a meta-problem too, which is, of course, what to pay attention to? Answering this question requires paying attention to what you’re paying attention to, which is what separates a smart person from a wise one.

Which brings me to one of the things I’m currently worried about. Civilizationally speaking, we are very smart but not very wise. We are very bad at paying attention to what we’re paying attention to, at least right now. And I’m afraid that both the broken incentives that plague the internet, as well as our broken money, are to blame. At least in part.

Assumptions [n=0]

∀i≤c¹
P!=NP²
Life is worth living³
There’s no free lunch⁴
Free Speech is desirable⁵

The Logos [n=1]

There is a reason why The Logos is sacred. It is the same reason why the First Amendment is the first, which means primary.

Free speech is not optional; it is not optional because we need to be able to speak freely so that we might have a chance to think freely. There is no proper thinking without proper speaking just like there is no proper speaking without proper thinking. We must be allowed to say foolish things, just like we must be allowed to think foolish things.

The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.

George Bernard Shaw, Man and Superman

The line between genius and Madman is a thin one for a reason. What is foolish and what is genius is often very hard to differentiate. That’s why all progress depends on the Unreasonable Man.

How do we have any chance to find and be able to listen to the Unreasonable Man if we silence him? Even worse, how do we listen to the unreasonable/genius parts of ourselves, if we are afraid to speak out in public or in private?

DiaLogos [n=2]

Free and unencumbered dialogue is not optional either. We need to be able to discuss things so that others might tell us where we are stupid. And we’re all stupid. We might be stupid in our own peculiar ways, but nevertheless, we are all stupid. There is no such thing as an unbiased opinion, just like there is no such thing as a viewpoint without a blind spot. The best we can do is be aware of and try to counteract our biases and blind spots. But we can’t do it individually; we have to do it collectively, and more importantly: in a distributed fashion.⁶

Building a Tower of Babel is a bad idea.

Distributed Cognition [n=m]

Public discourse is not optional either. In today’s day and age, especially online, public discourse is problematic, to put it mildly. One of the problems is that we don’t have any public spaces, so we are forced to use private spaces as quasi-public ones.

The go-to method for saying something publicly online is to step on a platform and say what you have to say. The problem is, of course, that it is not your platform. It is someone else’s platform. That’s why you can be de-platformed.

The difference between all these platforms is one of degree not of kind. On some platforms, you might land in proverbial jail for sexual content. On other platforms, you might land in jail for political speech. Not even proverbially.⁷

Give me six lines written by the hand of the most honest man, I would find something in them to have him hanged.

Cardinal Richelieu

If someone has the power to de-platform someone else, this power will inevitably be used and abused. A large enough scandal or controversy will be found or manufactured and *poof*, the “problematic” user is gone. Unpersoned, at the push of a button. No matter how powerful you are.⁸

That’s why Free Speech platforms cannot exist. Only Free Speech protocols can exist.

The difference is as subtle as it is important: when using a protocol, you’re not a user in the traditional sense. You are a speaker. You speak the same language as other people, and if someone else can hear and understand you, there is a connection. There is no facilitator in between. The language itself is the facilitator. Languages are protocols and protocols are languages. They don’t have users; they have speakers.

Language is inherently permissionless. You don’t need an English account to read these sentences. In the same vein, your computer doesn’t need an HTTP account to make sense of the zeros and ones that make up the bytes that in turn make up the characters of this sentence. You both speak the language, hence you can make sense of it.

Languages and protocols are network phenomena. No network, no language. No peers, no protocols.

That’s why language, like money, is not optional in a complex society. If you mess with either, society crumbles.

It’s (Up)On Us [n=i]

We are at a pivotal time in history. Never before was our civilization this connected, this global, and this unaware of its limitations and ignorance.

My hope is that sound money and free speech will revivify what made our society great in the first place. Cooperation and distributed cognition are what allowed us to leave the chaos of the jungle behind. It is what allowed us to move from an eye for an eye to seeing clearly, at least some of the time. It is what allowed us to move from scarcity to abundance. It is what allows us to move towards the True, the Good, and the Beautiful. It allows us to aspire. Onward and upward.

The Kairos of our time is a personal one—maybe all kairotic moments are.

You have to decide how to move forward. You have to decide what game you want to play; how much responsibility you are willing to shoulder. Do you want to stay stuck in the machine? A machine that uses and abuses you? A machine that feeds itself by extracting and devouring your time, attention, and value? Or do you have the courage to take control of your wealth, health, thoughts, and speech?

Nobody can make this decision for you. It starts and ends with you.

No information can travel faster than the speed of light. Consequently, all information systems will run into physical constraints when it comes to synchronization and information propagation. ↩
Cryptography works and will continue to work. “[…] somehow the universe smiles on encryption.” ↩
Existence is Real and Good. Neither Nihilism nor Solipsism are desirable. “[…] and it was good.” ↩
We can’t have something for nothing. Freedom requires responsibility; electronic cash requires time; time requires heat. ↩
Freedom of speech is desirable because freedom is preferrable to tyranny, and the first step of any tyrant is to restrict speech, silence dissidents, and burn books. The second step is genocide. ↩
It is great to see a proliferation of long-form dialog in the form of podcasts. However, the benefit of these conversations is lost if they are hosted by a central party, which is why an open podcast ecosystem is so important. ↩
See cases in the UK, Saudi Arabia, etc. ↩
Not even sitting US-presidents are safe from deplatforming. ↩

Moral, Integrität und Privatsphäre

Thu, 08 Feb 2024 00:00:00 +0000

Bitcoin ist nun 14 Jahre alt, und wie fast alle Teenager ist die orange Münze meist un- und missverstanden.

Bitcoin ist digitales Geld, Bitcoin ist elektronisches Gold, Bitcoin ist nur für Verbrecher, Bitcoin ist schlecht für die Umwelt, Bitcoin ist dies, Bitcoin ist jenes.

Manche sind schon einen Schritt weiter. Sie haben akzeptiert, dass Bitcoin ist, und nun fragen sie sich, warum Bitcoin so ist, und nicht anders?

Warum sind es 21 Millionen, und nicht 42? Warum 10 Minuten, und nicht eine? Warum braucht es Energie, und warum ist es nicht perfektestens privat?

All diese Fragen sind legitim, aber da Raum und Zeit begrenzt sind - sowohl hier, als auch in Bitcoin - werde ich mich ausschließlich auf die letzte Frage konzentrieren: die Frage der Privatsphäre. Oder umgekehrt: die Frage der Transparenz.

Warum ist Bitcoin transparent? Und muss es das sein? Um dies zu beantworten, müssen wir uns zuerst eine andere Frage stellen: Was ist der Sinn von Bitcoin? Und warum gibt es Bitcoin überhaupt?

Wenn mich jemand zwingen würde, diese Frage in einem Wort zu beantworten, dann wäre meine Antwort folgende: Integrität.

Die ersten Nachrichten von Satoshi machen klar, dass er mehrere Fliegen mit einer Klappe schlagen wollte: Micropayments, Kreditblasen, Mittelsmänner, und vieles mehr. Doch die größte Fliege ist wohl die Rückkehr zu gesundem Geld: einem Geld mit Integrität.

Auf einer rein persönlichen Ebene sind Anonymität und Integrität antonym, sprich: gegensätzlich. Wenn wir der Meinung sind, dass jemand Integrität hat, bedeutet dies, dass uns dieser jemand bekannt ist, und dass er oder sie in der Vergangenheit mit Integrität gehandelt hat. Wenn uns eine völlig fremde Person eine Nachricht schickt, ohne Hinweise auf Historie oder Identität, dann ist es uns unmöglich, etwas über die Integrität dieser Person auszusagen. Integrität und Historie sind somit ebenso verbunden wie Integrität und Identität, ob Pseudonym oder nicht.

Integrität bedeutet Ganzheit, Vollständigkeit, Unversehrtheit. Auf einer moralischen Ebene ist Integrität synonym mit Lauterkeit, Rechtschaffenheit und Unbescholtenheit. In der Informatik und in Bezug auf Daten versteht man unter Integrität Richtigkeit, Vollständigkeit und Konsistenz.

Bitcoin ist ein Informationskonstrukt welches letzteres—Informatik (und Physik)—verwendet um ersteres—Vollständigkeit, Unversehrtheit und Ganzheit—auf einer monetären Ebene wiederherzustellen. Und durch diese Wiederherstellung erlaubt es auch eine Rückkehr zu einer höheren Moral: Lauterkeit, Rechtschaffenheit, und Unbescholtenheit.

Warum dieses ganze Geschwafel über Moral? Und was hat dies alles mit Transparenz und Privatsphäre zu tun?

Ganz einfach: Die Datenintegrität, welche Bitcoin mit sich bringt, kommt nur teilweise von der privaten Sphäre; jene Sphäre, welche die privaten Schlüssel aller Nutzer innehält. Der andere Teil, der Teil welcher die Integrität der öffentlichen Sphäre sicherstellt, die Integrität der Materie an sich (eine Materie die man eventuell Bitcoinium nennen mag) kommt von vollständiger, nachweisbar unversehrter, und vollkommen einsichtiger Information.

Transparenz ist die Kehrseite der Überprüfbarkeit, und es ist diese Überprüfbarkeit, die es uns erlaubt, ein Geld zu besitzen, ohne anderen vertrauen zu müssen.

Datenintegrität ohne Privatschlüssel, ohne Geheimnisse. Das ist das was Bitcoin bringt, und darum braucht es auch Energie, da Energie offensichtlich ist. Ohne Energie keine öffentliche Datenintegrität; ohne öffentliche Datenintegrität kein Vertrauen.

“Aber was ist mit XY,” höre ich dich aus den hinteren Rängen schreien. Dein liebes XY, egal ob Shitcoin oder CBDC, benötigt spezielle private Schlüssel um Datenintegrität zu gewährleisten, falls Integrität überhaupt gegeben ist. Üblicherweise passiert dies über einen sogenannten “master key”, welcher per Zeremonie oder Fiat erstellt wird. Ob es ein einzelner Schlüssel ist oder ein Gremium an Schlüsseln ist irrelevant. Relevant ist, dass man diesem Schlüssel vertrauen muss. Und da ist sie schon wieder, die Wurzel allen monetären Übels: Vertrauen.

Man muss dem Master Key vertrauen, der Zeremonie der Erstellung, den Menschen, welche den Schlüssel halten, und so weiter und so fort. Integrität ist nicht mehr offensichtlich, da Teile der Historie nicht mehr offen und für die Öffentlichkeit nicht mehr ersichtlich sind.

Und das bringt uns zur Privatsphäre: Warum ist Bitcoin nicht perfektestens privat? Warum kann es und soll es das nicht sein?

Wenn alles absolut privat wäre, wäre es sehr schwierig die Integrität des ganzes Systems zu überprüfen, zumindest auf eine einfache und für jeden ersichtliche Art und Weise. Wie viel Bitcoinium ist im Umlauf, und hat auch wirklich niemand geschummelt? Hat jemand etwas zu viel Bitcoinium aus dem Hut gezaubert, oder jemanden anderen hintergangen? War jegliche Ausschüttung von neuem Bitcoinium legitim und fair? Und ist das was ausgeschüttet wurde auch noch vorhanden?

Dank Bitcoin’s Transparenz können wir ohne Zweifel nachweisen, dass der einzige Satoshi, der jemals verschwunden ist, Satoshi Nakamoto war. Alle anderen Satoshis sind buchhalterisch einsehbar und ohne jegliches Vertrauen Dritter überprüfbar.

Aber ja, Bitcoin soll, kann, und muss privater werden. Überwachung macht viele unserer Freiheiten unnütz; sie ist ein Direktangriff auf die Würde der Menschen, welche ja unantastbar sein sollte.

Wer glaubt, dass Überwachung harmlos sei, der sollte sich bewusst sein dass jegliche Überwachung, ob explizit oder nicht, Verhalten steuert und ändert. Ein flüchtiger Blick auf jegliche “versteckte Kamera”-Show zeigt dies deutlich: Alles ändert sich, wenn einem bewusst wird, dass man gefilmt wurde. Die Stimme in der Dusche verstummt, das Tanzen im Wohnzimmer hört auf.

“Dance like nobody’s watching, encrypt like everyone is.” Verschlüssele, als ob jeder zuschauen würde. Zumindest im Internet haben wir das gelernt.

Es hat rund 30 Jahre gedauert, um von HTTP auf HTTPS zu wechseln, aber wir haben es geschafft. Und ja, es hat die Enthüllungen von Edward Snowden gebraucht, bis es uns ernst wurde. Und möglicherweise brauchen wir für das HTTPS von Bitcoin ähnliche Enthüllungen, aber es muss und wird kommen. Und es wird auch zunehmend ernst werden, denn CBDCs sind unausweichlich.

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In den nächsten Jahren, ja vielleicht schon in den nächsten Monaten, werden die ersten CBDCs aktiv werden, und mit ihnen totale Überwachung und Kontrolle. “Mit CBDCs werden die Zentralbanken die vollständige Kontrolle über die Regeln und Vorschriften haben,” so Agustín Carstens in 2020. Regeln und Vorschriften bezüglich Geld—unserem Geld. Wer darf es ausgeben, und wer nicht? Wer darf es ansparen, und wer nicht? Wer darf mit wem Handeln, und wer ist vom Handel ausgeschlossen? Wer darf welche Güter beziehen, und wer hatte dieses Monat schon zu viel Fleisch, zu viel Benzin, zu viel Gas, oder zu viel Nikotin konsumiert? Wer darf noch Dünger kaufen, und wer hatte schon genug? Wer bekommt noch eine Rolle Klopapier, und wer hatte schon eine Rolle zu viel? All diese Fragen will der liebe Agustín, der dicke Kopf der Bank für Internationalen Zahlungsausgleich in Basel, für dich und mich beantworten. Zentral, autoritär, und unwiderruflich.

Bitcoin stellt den Gegenpol dar und bietet Zuflucht. Und weil es Zuflucht bietet, wird es auch reguliert und verboten werden. „Es muss Regulierung geben,” so Christine Lagarde, Chefin der Europäischen Zentralbank. “Diese [Regulierung] muss angewendet und vereinbart werden … auf globaler Ebene, denn wenn es eine Fluchtmöglichkeit gibt, wird diese Fluchtmöglichkeit genutzt werden.”

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Das muss man sich einmal auf der Zunge zergehen lassen: Das Oberhaupt der “Bank der Zentralbanken” will Bargeld verschlimmbessern und verlangt die totale Kontrolle über alle Transaktionen dieser Welt. Die Präsidentin der Europäischen Zentralbank meint, dass man alle Fluchttüren verriegeln soll, weil sonst würden die Menschen ja aus diesem wunderbaren CBDC-System flüchten. Schöne neue Welt.

Wir brauchen Bitcoin, und wir brauchen Privatsphäre. Gesundes Geld ist nicht genug. Es muss uns auch erlaubt sein, im Privaten zu denken und zu handeln. Ohne freies Denken kein freies Handeln. Ohne Meinungsfreiheit keine freie Gesellschaft; ohne freien Handel kein Wohlstand.

Wir brauchen HTTPS für Bitcoin, und wir brauchen es bald. Und ja, auch dieses HTTPS wird nicht perfekt sein. Aber es wird besser sein als der Status Quo, und hoffentlich “good enough.” Lightning ist bereits besser als on-chain, sowohl was die Geschwindigkeit als auch die Privatsphäre betrifft. Und höhere (oder andere) Layer werden noch besser sein.

Ich bin nach-wie-vor der Meinung, dass Agustín Carstens der Endboss von Bitcoin ist, da er das Oberhaupt der “Bank der Zentralbanken” darstellt. Die BIZ, die Bank für Internationalen Zahlungsausgleich, macht in der Fiat-Welt das, was Bitcoin automatisch alle 10 Minuten macht: sie gleicht Zahlungen aus, sie ist für das “Settlement” zuständig.

Bitcoin ist ein Settlement-Layer, und Bitcoinium ist das, was “gesettelt” wird. Eine der ersten Einsichten über Bitcoin war, dass es Bitcoin Banken geben wird, da das Protokoll niemals im Stande sein wird, alle Transaktionen dieser Erde zu bedienen. Hal Finney hatte diese Einsicht im Dezember 2010:

Tatsächlich gibt es einen sehr guten Grund für die Existenz von Bitcoin-gestützten Banken, die ihre eigene digitale Bargeldwährung herausgeben, die gegen Bitcoin eingelöst werden kann. Bitcoin selbst kann nicht so skaliert werden, dass jede einzelne Finanztransaktion auf der Welt an alle übertragen und in die Blockchain aufgenommen wird. Es muss eine sekundäre Ebene von Zahlungssystemen geben, die leichter und effizienter ist.

Hal Finney

Leichter und effizienter. Das Lightning Netzwerk ist dies bereits, da ein lokaler Abgleich immer leichter und effizienter sein wird als ein globaler. Und sehr bald wird es auch die Bitcoin-gestützten Banken geben, von denen Hal Finney sprach. Stichwort: (Fedi)Mint. Leicht, effizient und von Haus aus privat. Perfekt wird es allerdings wieder nicht sein, denn der Chaum’sche Traum von eCash bringt eben ein Haus mit sich: ein Konstrukt, welches die Bitcoin-gestützte Bank haust. Und den Hütern dieses Hauses muss man sehr wohl vertrauen, zumindest zu einem gewissen Grad.

Doch all dies ändert nichts an der wichtigsten Eigenschaft, welche Bitcoin mit sich bringt: die Integrität. Eine Integrität, welche unsere Gesellschaft tiefgründig ändern wird. Und sobald gesundes Geld wieder ein integraler Bestandteil unserer Gesellschaft ist, wird hoffentlich auch das Vertrauen zurückkehren. Das Vertrauen in uns. Das Vertrauen in die Zukunft. Und hoffentlich auch das Vertrauen, dass hinter verschlossenen Türen meist nichts Böses geschieht, sondern nur etwas Privates.

Bitcoin vertraut darauf, dass die meisten Menschen gut sind, sonst würde das ganze System nicht funktionieren. Es vertraut darauf, dass ein Schwarm ehrlicher Menschen stärker ist als jeglicher Angreifer, auch wenn wir nichts—oder nur sehr wenig—über diese Menschen wissen. Integrität durch Pseudonymität; das ist der Schlüssel.

This text was written at 795,921 and published originally in print for the fourth issue of the EINUNDZWANZIG magazine. You can buy a copy at einundzwanzig.shop

Reality

Sun, 04 Feb 2024 00:00:00 +0000

Reality is that which, when you stop believing in it, doesn’t go away. At least according to Philip K. Dick. But what if something unreal sticks around and lingers? Does it become real, or have you lost touch with reality?

I’ve been away for a little while—a very short little while, actually—and yet it feels like a long stretch of time. The reason for that is, I believe, that reality was suspended for said little while. Time becomes strange when reality is suspended. A dream can feel like a lifetime; the split-second of a car crash can feel like eternity.

Everyone has to go away from real life from time to time, to escape from real life, to go to the mountains, or to nature, or to hear music, to listen to poetry…just to dream and to escape a certain reality of life.

I don’t think that we escape for the sake of escaping. Not necessarily, not always. We escape to change ourselves, to get unstuck, to return as a different person. Back to reality. Everything’s real (again), yet everything’s different. Not better. Not worse. Different.

I don’t know why, but some people enter our lives and bring an entire universe with them.

I think that’s what happened. I think that’s why I’m sitting here now, writing these words. I think that’s what always happens when one’s reality shifts. You escape, enter into a different universe; and, if you’re lucky, a little part of this universe stays with you.

We are obsessed with escapism because our souls weren’t made for this world.

You wake up from the dream; you know it wasn’t real, and yet you’re still glowing. You know that you can’t go back; and most importantly, you can’t go back to the way things were. You feel like nothing much has changed, and yet you’re now living in a different reality.

Lethargy

Sat, 03 Feb 2024 00:00:00 +0000

Lethargy. A state of comatose torpor. Oh, what beautiful words. Oh, what a horrible condition of relentless agony.

I’m not sure if there’s a way to do this right. I wanted to say what I’m going to say for a long while now, but I never mustered the courage to do so.

Doing it Wrong

“If you’re not having fun in the bitcoin space you’re doing it wrong,” is something I’ve said a long time ago. I used to have an incredible amount of fun while doing an incredible amount of work. It still feels like I’m doing a significant amount of work most of the time, but it’s been a while since I’ve had the fun I used to have. I’m not sure why that is. It might be because, as of this writing, most of the work I do is unseen or unpublished. So it oftentimes feels like I’m actually doing nothing—or not enough. Not fun.

The most “nothing” happens of course in the one area that you (and myself) care most about, which is writing. I’ve done zero writing in the last 12 months. Maybe even 18, I’m not sure. I’d have to go back and look at my records. By writing I mean meaningful writing, obviously. Deep work. Insights worth sharing. Insights like this, or this, or even rants like the one I wrote two years ago.

Granted, I’ve written a lot of blog posts in the recent months and I’m proud of many of them, but that’s not the writing I should be doing. At least that’s what my subconscious has been telling me, or what I’m telling myself right now, at this moment.¹ In any case, I’ve been doing it wrong for a while now. And today—yesterday, actually—that became obvious to me.

Breaking

I still have the picture on my wall that I mentioned in an old blog post², and it still says the following: “You literally ought to be asking yourself all the time what is the most important thing in the world I could be working on right now, and if you are not working on that why aren’t you?”

It’s a mantra shared by Aaron Swartz, one of the very few people that I’d consider to be a hero of mine. I’ve lived by this mantra for almost 10 years now, which led me to work on bitcoin full-time for the last 7 or so. I still live by this mantra, and the answer is still bitcoin. But for the last 7 years, I’ve purposefully ignored all side-quests, one of which is “take care of yourself.”

Care

I care deeply about Bitcoin, and I care deeply about bitcoiners. More than I care about myself, which became obvious about two weeks ago.

“I think I’ve reached a breaking point,” is what I’ve told a close friend of mine. “How do you know?” is what he answered. “It took me 45 minutes to get out of my car, 45 minutes to get out of the garage, and another 45 minutes until the flow of tears stopped.”

“Oh, wow,” is what he said. “Yeah, wow” is what I answered.

Change

I never took a day off. “It’s too important,” is what I’ve been telling myself. Yes, it’s important. But not burning yourself to a crisp is important too.

“Nodes are free to leave and re-join the network.” True for nodes, true for people. That’s what I’ve been telling others that have reached similar breaking points in the past. That’s what I’ll keep telling everyone who is at the edge of burning out: “Please take a break. Please take care of yourself and your loved ones. Bitcoin isn’t going anywhere. You’re free to re-join at any time. Or not! That’s fine too. But please take care of yourself and your health. Nothing else matters if you’re miserable.”

I’ve been telling the above to many people over many years, and I hope that many of them took my advice. I’ve never told it to myself, so I’ll do it now: “you’ve done quite a bit, it’s okay if you don’t publish a chapter every week. Please take care of yourself. And whatever you do, please don’t burn out.”

Thanks. I’ll try.

Shutdown

The internet is a fantastic thing. I still love it, as I do bitcoin (and nostr, for that matter). I love it because it opens up possibilities; it removes distance.

My personal policy was always to say yes and make time for people. My DMs were always open, and I tried my best to be reachable, responsive, and helpful. I’m afraid that I’ll have to sunset that policy. It’s not workable anymore. I’ve been drowning in DMs and emails for a long time now, and there’s simply no way I’m ever going to read, let alone respond to, everything.

Don’t get me wrong. I’m incredibly grateful that so many people reach out to me. It warms my heart, and I’m often moved to tears by the stories they share or the opportunities they offer. But it’s also overwhelming, and I’ve been overwhelmed for longer than I’d care to admit.

It’s obvious that I have to change something. It has been obvious for a while. So I’m going to change it. I promise.

Promises

Promises are part of the problem, so I’m going to fix it once and for all with this last one: No more promises.

I promised to finish the book in X months, and I broke that promise. I promised to write about Y “soon” ™, and I broke that promise too. I promised the people who support me to be available for periodic chats and questions, and I broke that promise as well, multiple times.

No more.

Breaking promises is a surefire way to misery, so I won’t do it anymore. No more promises. After all, the easiest way to avoid breaking a promise is by not making one in the first place.

If I feel like writing something, I’m going to write it. And I’m going to do my best to publish it. But I won’t promise any more Q&As, or any more updates, or anything of that sort. I can’t. It’s too much for me. I’m sorry.

Just writing the few paragraphs you’re reading right now took me a couple of weeks, and, ironically, I promised myself that I would get it done before the first Sunday of the month. Which is tomorrow. In two hours, more precisely.

So here I am, sitting in my car once more, unable to move once more, tears and all once more, about to break a promise once more.

Something has to change, and it’s obviously me. Me and the endless promises I make to myself and others.

I still want to finish the book. One day, eventually. I still want to return to doing interviews and other things. One day, eventually. But right now I have to focus. On my health, my family, and the one project that is too important to drop. But I’ll drop everything else for now. I have to.

And now, as I’m writing this, the same old thoughts come up again. Thoughts that try everything they can to bully me into doing more. Thoughts that discourage me from posting this; thoughts that call me whiney, weak, ungrateful, and worse; thoughts that have me doubt everything, including my decision to start writing in the first place.

I’m incredibly grateful for everything, I truly am. I’m grateful for everyone who supported me on my writing journey. You are all amazing, and I feel devastated to let you down like this.

I want to write more, I really do. It’s just not in the cards at this moment. I finally have to be humble enough to admit to myself that I can’t.

What remains is hope. Hope that it will all be fine in the end. Hope that others will say what I’ve left unsaid,³ that they’ll write some of the things I’ve always wanted to write. Hope that you’ll forgive me, or that at least I’ll be able to forgive myself. And last but not least, hope that admittance will bring betterment eventually, or, at a minimum, subdue the lethargy.

“This moment” was about a month ago, which is, of course, exactly the problem I’m trying to solve. ↩
2020 was ages ago, wow. ↩
“I wonder… How much love in this world hides behind silence?” ↩

Die Frage Nach der Energie

Mon, 26 Jun 2023 00:00:00 +0000

Als Bitcoiner haben wir das Argument rund um die Energieverschwendung schon zu genüge gehört: Bitcoin verbraucht mehr Energie als ein kleines Land, Bitcoin bringt die Ozeane zum Kochen, Bitcoin verdreckt und verschmutzt, macht unnötige—ja sogar sinnlose—Berechnungen, erzeugt Elektroschrott, und wird sowieso nur von Verbrechern und anderen bösen Menschen verwendet. Die Konklusio ist immer die gleiche: Bitcoin ist verschwenderisch oder sogar böswillig, Bitcoiner sind geldgierige Spekulanten denen die Natur egal ist, meist gefolgt von einem Vorschlag wie man es besser (sprich: energieeffizienter) machen könnte. Des Öfteren auch gefolgt von einem Aufruf zum Verbot, nicht nur von Bitcoin, sondern auch von Proof-of-Work im Allgemeinen.

In den Augen der Kritiker ist Bitcoin meist sinnlos, nutzlos und zwecklos. Diese Grundannahme kann nur zu einem Schluss führen: Jede Kilowattstunde, die vom Bitcoin Netzwerk “gefressen” wird, ist eine Kilowattstunde zu viel. Bitcoin ist pure Energieverschwendung.

Aber schon alleine dieses Wort, Energieverschwendung, sollte uns zu denken geben. Warum wird nicht von Energieverbrauch, oder sogar Energieaufwand gesprochen?

Verschwendung, Verbrauch und Aufwand sind nicht synonym. Ersteres ist wertebehaftet und somit von Haus aus ideologisch. Zweiteres ist konsumorientiert und vernachlässigt das Grundgesetz der Energie: dass sie nicht verbraucht, sondern nur umgewandelt werden kann. Nur der dritte Terminus, der Energieaufwand, erlaubt ein klareres Verständnis von Bitcoin und Energie.

Lasst uns, lieber Leser, zuerst jedoch bei der Verschwendung bleiben.

Energieverschwendung

Was Verschwendung ist und was nicht liegt, wie auch bei der Schönheit (und der Hässlichkeit), im Auge des Betrachters. Es ist egal, ob es sich dabei um Energie- oder Zeitverschwendung handelt. Nur der Mensch kennt Verschwendung; die Natur kennt diese nicht. Und je nach Wertehierarchie ist das, was für den einen wertlose Verschwendung sein mag, für den anderen nicht nur wertvoll, sondern lohnend.

Was ist essentiell, was Luxus, was Exzess, und was Verschwendung? Und wer entscheidet das?

Der ganz normale Wasserverbrauch von einem durchschnittlichen österreichischen Haushalt gilt in den trockeneren Regionen dieser Welt als verschwenderisch. Wie viel Wasserverbrauch ist genug, und wann geht Verbrauch in Verschwendung über? Sind Schwimmbecken Verschwendung? Bäder? Springbrunnen? Und erneut: wer entscheidet?

Wie viel Wasser darf ein Haushalt, eine Firma, eine Person, eine Familie verwenden, oder sogar verschwenden? Wie viel Energie? Wie viel Elektrizität?

Und warum sollen wir bei diesen Fragen aufhören? Sind 3 Mahlzeiten am Tag Verschwendung, wenn eine reicht? Ist Autofahren Verschwendung, wenn man theoretisch auch überall zu Fuß hingehen kann? Wie viel Megabyte an Datenvolumen und/oder Speicherung sind ok? Ist Energieaufwand im Fitnessstudio erlaubt, oder ist jegliche Bewegung welche die aktive Person nicht von A nach B bringt unter verschwenderischem Körperkult zu verbuchen? Was ist mit Wäschetrocknern, welche Unmengen an Energie “fressen”? Könnte man die Wäsche nicht einfach auf eine Leine hängen? Wie viele Autos pro Person sind genug? Wie viele Computer, Handys, Kugelschreiber? Wie viele Blätter Papier, wie viele Bücher, wie viel Musik? Ist Musik essentiell, oder nicht? Ist sie effizient? Darf man noch Tanzen, wenn man am Ende des Tanzes wieder am gleichen Punkt ankommt? Wäre es nicht besser den Tanz aus Gründen der Ineffizienz zu verbieten?

Diverse Urvölker krümmen sich vor Lachen, wenn die Menschen aus dem Westen versuchen, ihnen das Prinzip des “Joggens” näherzubringen. Warum fünfmal um den Häuserblock laufen? Noch dazu ohne Aussicht auf Beute? Die Diskussion um Bitcoin’s Energieverschwendung kommt mir oft ähnlich vor, die Frage ist nur, welche Seite “primitiv” ist und welche “modern” und fortgeschritten. In den Augen der Kritiker ist Bitcoin primitiv und verschwenderisch. In den Augen der Bitcoiner gilt selbiges für Fiat-Geld.

“One man’s trash is another man’s treasure.” Was der eine nicht zu schätzen weiß, ist für den anderen ein wertvoller Schatz. Gold war wertlos für die Inkas, zumindest ökonomisch. Öl war nicht nur wertlos, sondern toxischer Schlamm. Erst als wir lernten, wie wir die in ihm gebundene Energie freisetzen konnten, verwandelte sich der Schlamm in das “schwarze Gold” der Neuzeit. Silizium war vergleichsweise wertlos, bevor wir lernten, das Kristall zu isolieren und in denkende Maschinen zu verwandeln, also Computerchips damit herzustellen.

Was wertvoll ist und was nicht, ist somit nicht nur von Person zu Person und von Kultur zu Kultur unterschiedlich, sondern auch von Zeit zu Zeit. Unsere Wertevorstellungen ändern sich, und somit ändert sich auch unsere Vorstellung davon, was Verschwendung ist und was nicht.

Auch ich war der Meinung, dass Bitcoin Energie verschwendet. Vor vielen Jahren. Inzwischen hat sich meine Perspektive jedoch so weit verändert, dass mir bewusst wurde, dass Bitcoin nicht nur Energie verbrauchen muss, sondern dass dieser Verbrauch essentiell ist. Elektronisches Bargeld kann nur durch Energieverbrauch natürliche Knappheit erlangen. Ohne Energieverbrauch wird jegliche Knappheit immer politisch bleiben.

Energieverbrauch

Bitcoin ist eine Antwort auf die moralische Frage des Besitzes. Wer darf Besitz haben, und wer darf enteignet werden? In anderen Worten: Darf jemand Geld drucken, und wenn ja, wer? Wer darf Geld ausgeben, wer darf es empfangen? Wie viel Geld ist genug? Dürfen Sparer durch Inflation bestohlen werden? Dürfen Personen von anderen Personen enteignet werden?

Besitz und Geld, Geld und Besitz: zwei Seiten der gleichen Medaille, und die Energie ist jenes Phänomen, welches diese Medaille schützt. Wir bauen Mauern und Tresore, Burgen und Schlösser, Boote und Panzer, um unseren Besitz, unser Geld und unsere physikalischen Körper zu schützen. Je mehr Energie für diesen Schutz aufgewandt wird, desto besser ist unser Eigentum beschützt.

Bezüglich dem Geld und der Energie lernen wir immer und immer wieder, dass Geld nur dann gutes Geld ist, wenn es nicht einfach aus dem Nichts erschaffen werden kann. Sobald Geld aus dem Nichts erschaffen werden kann, z.B. ohne Aufwand von Energie und Zeit gedruckt wird, ist der natürliche Schutz des Geldes aufgehoben, und die Aufgabe, welche das Geld an sich der Gesellschaft gegenüber hat, bricht zusammen. Handel, Vorsorge, Langzeitplanung, Finanzierung, ökonomische Kalkulation und Koordination werden unmöglich. Die Geschichtsbücher lehren uns, dass, sobald Geld und Energieaufwand entkoppelt sind—wie z.B. in China während der Song Dynastie, als Papiergeld das erste Mal erfunden und bis zum geht-nicht-mehr gedruckt wurde; oder gegen Ende des römischen Reiches, von Nero zu Diokletian, als der silberne Denarius von 90% Silberanteil auf nahezu 0% Silberanteil entwertet wurde; oder während der Hyperinflation in Weimar und Simbabwe, als die Geldscheine schneller gedruckt wurden als die Bevölkerung jene mit Schubkarren und Müllsäcken abtransportieren konnte—das Geld schnell seine Wirkung verliert. Das Resultat ist immer das Gleiche: Armut und Krieg.

Es ist kein Zufall, dass der Untergang eines Reiches so gut wie immer mit dem Untergang des Geldes einhergeht. Es ist auch kein Zufall, dass auf Geldentwertung Krieg folgt, und dass auf Krieg Geldentwertung folgt. Steuern sind generell unbeliebt; eine Kriegssteuer ist doppelt unbeliebt. Es ist doch viel einfacher, die ökonomische Energie welche für die Kriegsführung benötigt wird, direkt aus der Währung zu entnehmen. Einfacher, unauffälliger, und auch mit weniger Aufwand verbunden.

Energieaufwand

So kommen wir nun, über die Verschwendung und den Verbrauch, zum Aufwand. Damit etwas passiert, muss man Energie aufwenden. Dies ist ein grundlegendes Gesetz unseres Universums, auch wenn gewisse Fiat-Jünger uns stets vom Gegenteil überzeugen wollen.

Nun stellt sich die Frage: Was passiert in Bitcoin, und warum muss es Energie aufwänden?

Bitcoin braucht Energie, weil wir ohne Energieaufwand wieder beim Versprechen wären. Fiat ist Versprechen. Fiat lux, es werde Licht. Ich—als Gott, Autoritätsperson, Staat—spreche, und dann ist es so. Unabhängig von physikalischer Realität.

Und was wird in Bitcoin versprochen? Ganz einfach: Bitcoin verspricht dich nicht zu bestehlen. Weder durch Beschlagnahmung, noch durch Inflation. Wenn man dem steten Blockgeflüster zuhören könnte, würde man wohl folgenden Satz hören: “…du sollst nicht stehlen…du sollst nicht stehlen…du sollst nicht stehlen…” Alle 10 Minuten.

Dieses Versprechen—dass dein Besitz dein ist, und nur dein—ist die Essenz von Bitcoin. Und damit dieses Versprechen nicht nur ein Versprechen ist, sondern physikalische Realität, benötigt jeder neue Bitcoin Block eine gewisse Menge an Energie bis dieser spruchreif wird.

Die Geschichte zeigt uns, dass kein Mensch der Gelddruckerei widerstehen kann. Nichtmal Marcus Aurelius, der letzte “philosopher King” des römischen Reiches, konnte dieser Macht entsagen. Wir loben ihn noch heute für seinen Stoizismus, seine mentale Stärke, für seine Werte und seine hohe Moral. Doch auch er hat Geld “gedruckt”, indem er den Silberanteil des Denarius um etwa 10% verringert hat. Er hat somit ein Zehntel der wirtschaftlichen Lebenszeit (und Energie) von seiner produktiven Bevölkerung gestohlen. Eine wortwörtliche “Dezimierung” von biblischem Ausmaß.

Wir haben über viele Jahrtausende gelernt, dass niemand der Macht der Gelddruckmaschinen widerstehen kann. Niemand. Nicht du, nicht ich, und auch nicht der mächtigste und moralisch korrekteste Emperator aller Zeiten. Die Lösung fanden wir in Gold, welches uns erlaubt hat unsere Geldpolitik der Natur zu überlassen. Aus Politik wurde Physik, und das Problem des Geldes war ein-für-alle-mal gelöst.

Doch die physikalität von Gold ist seine Schwäche, denn Gold hält das oben genannte Versprechen nur für Inflation, nicht für Beschlagnahmung. Ich kann dein Gold stehlen, und der Staat kann es auch. Und weder du noch der Staat kann Gold teleportieren, warum wir erst Schuld- und dann Geldscheine erfunden haben. Papiergold ist ein technologischer Fortschritt; Papier-bitcoin ein Rückschritt.

Bitcoin ist somit eine Rückkehr zur Physik, aber Bitcoin ist nur über Umwege physikalisch. Bitcoin ist elektronisches Geld, nicht physikalisches Geld. Bitcoin ist Information, kein physikalisches Ding, aber in dieser Information steckt tatsächlich Energie, über den Umweg der Elektrizität.

Energie und Elektrizität sind übrigens auch nicht synonym, was die meisten Bitcoin-Kritiker ebenso gekonnt beiseite lassen. Energie kann nicht verbraucht werden, Elektrizität schon. Energie kann gespeichert werden, Elektrizität nicht. Energie ist im Überfluss vorhanden, Elektrizität, welche von Menschen für menschliche Zwecke verwendet werden kann, muss produziert, generiert und sofort verbraucht werden. Darum ist Bitcoin als Puzzlestück in der Elektrizitätsproduktion auch so wichtig, da es einzigartige Verbrauchereigenschaften hat. Ob Netzstabilisierung oder Produktionsanreiz, Bitcoin ist der “buyer of last resort” und nimmt jedes Elektron gerne für sich auf.

Es steckt schon im Titel des Whitepapers: “electronic” cash, elektronisches Bargeld. Bitcoin ist nicht digital, sondern elektrisch. Ich frage mich also, liebe Kritiker, warum elektrische Autos so gut sein sollen, und elektrisches Geld so schlecht?

Bitcoins Energieaufwand bietet Schutz und Stabilität. Nicht Preisstabilität, sondern Systemstabilität: Alle 10 Minuten kommt ein neuer Block. Alle 10 Minuten, dies ist das Naturgesetz von Bitcoin. Diese Blockproduktion braucht Energie, das Schürfen von Bitcoin nicht. Ohne Energie kein Naturgesetz, ohne Naturgesetz kein unpolitisches Geld.

Bitcoins Naturgesetz erlaubt, dass seine elektronischen Münzen nicht durch Energieaufwand geschürft, sondern über die Zeit unpolitisch und fair ausgegeben werden. Bitcoins Münzprägung ist somit nicht an den Energieaufwand gebunden, sondern an die Zeit. Darum wissen wir auch, dass bis zum Jahr 2140 neue Münzen in Umlauf kommen werden, und wie viele. Die Münzproduktion ist unabhängig vom Energieaufwand. Bitcoin’s Energieaufwand ist ein Messwert von Interesse und fairer Verteilung, nicht ein Messwert der Produktion durch Schürfung, wie es bei Gold der Fall ist.

Wenn das Interesse für Bitcoin bei Satoshi Nakamoto geblieben wäre, dann würde sich der heutige Energieaufwand von Bitcoin nach-wie-vor auf ca. 100 Watt pro Stunde beschränken, was etwa dem Energieverbrauch von einer einzelnen CPU von 2009 entspricht. Der Stromverbrauch wäre somit nahezu Null, die Anzahl der Münzen wäre jedoch die gleiche. Doch alle bis dato geschürften Münzen würden bei Satoshi liegen, und zentrales Geld ist gefährliches Geld. Es wäre auch ein Leichtes die Geschichte von Bitcoin zu überschreiben, das Geld zu manipulieren. Und das wäre alles andere als gesund.

Fix the money, fix the world. Zu Deutsch: Energieaufwand macht das Geld gesund, und gesundes Geld macht die Welt gesund. Digitales Geld ist schlechtes Geld, da es von Natur aus Fiat-Geld ist. Die Ausnahme ist Bitcoin, da sich hinter den Nullen und Einsen Physik versteckt. Nur elektronisches Geld kann gutes Geld sein. Nur Proof-of-Work erlaubt Datenintegrität ohne Geheimnisse.

Die eigentliche Frage ist somit: Wie viele Kilowattstunden ist sie uns wert, die gesunde Welt? Eine Antwort bleibt aus, da dies jedes Individuum für sich entscheiden muss. Was bleibt, ist die Frage: Die Frage nach der Energie.

This text was written at 795,921 and published originally in print for the third issue of the EINUNDZWANZIG magazine. You can buy a copy at einundzwanzig.shop

Bees

Sun, 04 Jun 2023 00:00:00 +0000

Bees are marvelous creatures. As are most creatures, I guess.

Without bees, there wouldn’t be any flowers. Without flowers, there wouldn’t be any bees.

I was walking along a beautiful path today, as I do most days. To think, enjoy, meander. An intense buzzing stopped me in my tracks. Bees. Hundreds of them. Possibly thousands. Busying themselves with the things that bees busy themselves. It was a sight to behold. The sound? Overwhelming.

The older I get, the more I realize that we are more like bees or ants than we are like wolves or sheep. Busying ourselves with the things only humans busy themselves with, mostly oblivious towards the larger structures we are embedded in. Effective in large groups. Borderline useless when truly alone. Isolation kills bee, ant, and human alike.

But the busyness is what got me. We are all so busy, myself included, that we almost never have time to stop, take a breath, and marvel at the bees.

Lightning ändert alles

Mon, 08 May 2023 00:00:00 +0000

Lightning ändert alles. Es ist nicht die einzige Lösung, und es ist auch nicht das Ende der Fahnenstange, aber trotzdem ändert es alles. Lightning ist Bitcoin und setzt Bitcoin frei. Lightning lässt Sats fließen, ermöglicht Lichtgeschwindigkeit ohne Kredit. Es bringt gesundes Geld in Meat- und Cyberspace. Und das ändert alles.

Geld und Kredit

Bitcoin ist die Antwort auf eine Frage. Was Geld ist, was Geld war, und was Geld sein kann. Bitcoin ist kein Kredit, kein Schuldschein für ein externes Ding. Bitcoin ist das Ding selbst. Ein digitaler Rohstoff ohne externe Abhängigkeiten, ohne Gegenparteirisiko.

Bitcoin ist ein Informationskonstrukt, und doch ist es physikalisch. Die Kopplung an die Physik macht Bitcoin real, und diese Kopplung bringt Limitation. Nicht nur die Limitation des Rohstoffes selbst—21 Millionen—nein, auch die Limitation der Übertragung dieses Rohstoffes—ein Block, alle 10 Minuten.

Es sind diese 10 Minuten welche den Rohstoff Bitcoin in Umlauf bringen. Alle 10 Minuten werden Sats gefunden—nicht erzeugt, gefunden. Alle 2.1 Quadrillionen Sats existieren seit Beginn von Bitcoin. Diejenigen, die wir “Miner” nennen, graben sie aus. Sie werden von dem Netzwerk für ihren Aufwand, gültige Blöcke zu finden, belohnt. Sats erzeugen diese Miner allerdings nicht. Alle Sats existieren bereits; die Zeit setzt sie frei, diese wunderbaren Sats, und die Miner helfen ihr dabei. Die Symbiose von Mensch und Protokoll bringt Sats in Umlauf, und die Symbiose von Bitcoin und Lightning lässt uns diese Sats teleportieren. Ohne Verzögerung, und ohne zusätzlichen Energieaufwand.

Bitcoin ist eine Antwort auf die Frage der Limitation: Limitation im unlimitierten digitalen Raum. Lightning ist eine Antwort auf die temporale Limitation, welche Bitcoin mit sich bringt. Nicht die einzige, aber eine, die uns ein großes Stück weiter bringt. Wir werden nicht für absolut alles Lightning verwenden, so wie wir auch nicht für absolut alles TCP verwenden. Es wird neben Lightning auch noch andere Protokolle geben, welche Sats auf verschiedene Art und Weise fließen lassen werden. Aber die Protokolle Lightning und Bitcoin, kurz LNP/BP, werden wahrscheinlich ähnlich wichtig für den Werteaustausch werden wie TCP/IP für den Datenaustausch bereits ist.

TCP/IP und LNP/BP

Wir leben im Zeitalter der Information. Die Teleportation von Information hat sowohl die Welt als auch unser aller Leben verändert. Die Teleportation von Wert wird es wieder tun.

Der Unterschied zwischen Wert und Information ist, dass ersterer nicht kopiert werden kann. Kopien sind nicht besonders wertvoll, vor allem wenn diese ohne Aufwand und Kosten erstellt werden können. Wörter, Sätze, Paragraphen, und Texte sind kein rares Gut. Digitale Bilder auch nicht, denn all diese können ohne großen Kostenaufwand kopiert werden. Die digitale Welt erlaubt perfekte Kopien dank Fehlerkorrektur, somit ist die Kopie vom Original nicht zu unterscheiden. Das Original wird zur Kopie. Das ist das Problem von TCP/IP.

Bitcoin ändert nichts an diesem Problem, und Lightning auch nicht. Information, welche gelesen werden kann, kann auch immer kopiert werden, und zwar perfekt. Das Wunderbare an LNP/BP ist das Regelwerk, welches ungültige Kopien wertlos macht. Es ist dieses Regelwerk, welches Information zu Geld werden lässt.

Information und Geld

Geld war und ist immer Information. Die Suche des Menschen nach gutem Geld ist die Suche nach einem Rohstoff, welcher diese Information am ehrlichsten abbilden kann. Von Zahn und Kuh, über Fell und Knochen, zu Muschel, Salz und Stein, landeten wir schließlich und endlich bei Metall, da es von Natur aus selten ist. Der Mensch sieht die Limitation jedoch als Feind, weshalb wir via Papier die Limitation besiegt und letztendlich über Plastik beim Datenbankeintrag gelandet sind. Aus gesundem Geld wurde Versprechen, und aus Versprechen Null und Eins. Wer diese Nullen und Einsen manipulieren kann, manipuliert das Versprechen des Geldes, und mit ihm die Menschheit selbst.

Die Menschheit hat vergessen, dass Geld nicht Kredit ist, auch wenn beides Information ist. Bitcoin ist die Wiederentdeckung von diesem verlorenen Wissen. Sats sind nicht Kredit, können nun aber—dank Lightning—wie Kredit mit Lichtgeschwindigkeit übertragen werden.

Herkömmliches Geld—egal ob Kreditgeld oder Gold—hat diese Eigenschaft nicht und kann diese Eigenschaft auch nie haben. Geld mit physikalischem Körper kann niemals ohne Schuldschein teleportiert werden, und Schuldscheine haben immer Gegenparteirisiko.

Lightning ändert alles, weil Bitcoin Information zu Wert macht, und dieser Wert nun—ohne Gegenparteirisiko und mit Lichtgeschwindigkeit—direkt übertragen werden kann. Nichts kann rarer sein als Bitcoin. Nichts kann schneller sein als Lightning.

Gegenwart und Zukunft

Vor nicht allzu langer Zeit war Lightning noch #reckless. Heute, um Block 777.777 herum, kommt mir Lightning nicht mehr sehr reckless vor, sondern eher ganz normal. Mir ist bewusst, dass meine Situation nicht dem Normal entspricht, aber für mich funktioniert Lightning. Es ist Alltag. Jeden Tag, jede Stunde, jede Minute funktioniert Lightning für mich. Egal ob normale Invoices, “Streaming Sats” via Podcasting 2.0, oder Zaps über Nostr. Lightning funktioniert, und die Magie wird langsam aber sicher zur Normalität.

Ich gehe davon aus, dass Lightning in Zukunft noch viel besser funktionieren wird. Günstiger, schneller, effizienter und effektiver. Wir wissen, dass wir viele Aspekte des Protokolls noch verbessern können. Von Routing über Pfadfindung hin zu Payment-Codes welche wiederverwendet werden können—es gibt noch allerlei zu verbessern!

Wir sollten aber auch ab und zu innehalten, und uns bewusst werden, wie weit wir schon gekommen sind. Die erste Lightning Konferenz in Berlin kommt mir wie gestern vor. Ein paar Hundert Bitcoiner, ein Cocktailautomat, und jede Menge Lightning Wallets, die nur darauf warteten, QR Codes zu scannen, um Sats durch die Gegend zu schubsen. Alle waren vorbereitet, alle waren aufgeregt, die Wallets waren voll, die Kanäle ausbalanciert, und trotzdem ging jedes zweite Payment schief.

Heute funktioniert es einfach. In Zukunft wird es noch besser funktionieren.

Strand und Dschungel

Ganze Länder verwenden inzwischen Lightning. Klar, es ist nicht alles perfekt in El Salvador, aber trotzdem ist es unglaublich, dass ein ganzes Land auf Bitcoin gewechselt ist, wenn auch nur teilweise. Kinderkrankheiten und Wachstumsschmerzen sind zu erwarten. Early Adopter sind per Definition “zu früh.” Dies gilt für Menschen, Firmen und Länder gleichermaßen. Die Ersten sind immer zu früh, die breite Masse kommt immer dann, wenn die scharfen Kanten glatt gebügelt sind, und die Nachzügler verwenden das neue Ding erst dann, wenn das neue Ding nicht mehr neu ist, sondern Alltag. Das war mit dem Internet so, und auch mit Smartphones, und mit Bitcoin und Lightning wird das nicht anders sein.

Das Schöne an ausgereiften Technologien ist, dass man sie nicht verstehen muss, um sie erfolgreich anwenden zu können. So gut wie niemand weiß wie sich ein Fahrrad in der Balance hält, wie ein Verbrennungsmotor funktioniert, oder wie sich ein Smartphone mit dem Internet verbindet. Trotzdem haben wir kein Problem damit, diese Dinge zu verwenden, ja sogar so weit unser aller Leben mit diesen Dingen zu verschränken, dass wir ohne diese Technologien kaum mehr leben können.

Ist Lightning ausgereift? “Noch nicht, aber bald” wäre meine Antwort. Bald wird man keinen Unterschied mehr zwischen den jetzt gängigen EC Karten und Lightning spüren. Dank Apple- und Google-Pay ist es ganz normal, per Handy oder Uhr zu bezahlen. Lightning kann das auch. Die ersten Bier- und sonstigen Automaten der Bastler und Hacker zeigen es vor. Eine Integration in “normale” Point-of-Sale Terminals unausweichlich. Der Unterschied zu Google- und Apple-Pay ist kaum merkbar, und doch ist er riesengroß. Sats, nicht Fiat. Gesundes Geld, nicht Kredit.

In manchen Gegenden passiert diese Integration bereits. In manchen Gegenden ist Lightning schon normal. Ich hatte vor kurzer Zeit das Vergnügen, “Bitcoin Jungle” besuchen zu dürfen, und konnte dort eine ganze Woche lang meine Sats bei den verschiedenen Märkten und Geschäften liegen lassen, welche ihre Waren für das rare Gut Bitcoin anbieten. Am ersten Tag war dies noch eine Neuheit: T-Bone Steaks beim Fleischer mit Lightning bezahlen, von meiner Node zu seiner. QR Code gescannt, zwei grüne Haken, erledigt. Unglaublich. Ein paar Tage später, nach dutzenden von diesen Transaktionen, war das alles schon ganz normal. Sats sind der Standard. Händler, welche Lightning nicht akzeptieren, sind die Ausnahme. Zumindest im Dschungel.

Bitcoin Beach war natürlich das erste Gebiet, welches großflächig auf Lightning aufgesprungen ist. Man darf nicht vergessen, dass, auch wenn El Salvador gerne als “top-down” Adoption gesehen wird, die ursprüngliche Bewegung “bottom-up” war, und zu einem gewissen Teil auch immer noch ist. Ich glaube, Bitcoin-Adoption kann nur bottom-up funktionieren. Jemandem Bitcoin aufzuzwingen funktioniert nicht, wie viele Bitcoiner aus eigener Erfahrung mit ihren Liebsten bestätigen können.

Es muss wohl so weitergehen wie bisher: Strand für Strand, Dschungel für Dschungel, See für See, Mensch für Mensch. Mit der Zeit wird es viele verschiedene “Bitcoin Beaches” geben, und auch viele verschiedene “Bitcoin Jungle”, und auch mehrere “Bitcoin Lakes”. Die drei bekannten werden für immer die Ersten sein. Alle weiteren werden eines gemeinsam haben: gesundes Geld, und ein globales Netzwerk, welches sie alle verbindet.

Meatspace und Cyberspace

Die größte Veränderung, die Lightning mit sich bringen wird, wird allerdings nicht in Bitcoin Beach oder Bitcoin Jungle sein. Die größte Veränderung betrifft kein geographisches Gebiet, sondern ein abstraktes: Cyberspace. Lightning im Meatspace ist etwas Wunderbares, keine Frage. Aber es macht für den Kunden keinen großen Unterschied, ob man an einem Markt mit Bargeld oder mit Lightning bezahlt. Weder praktisch, noch konzeptionell.

Es macht allerdings einen großen Unterschied, ob man online mit Kreditkarte oder Lightning bezahlt, sowohl praktisch als auch konzeptionell. Vor Bitcoin gab es kein Bargeld im Internet. Vor Lightning gab es keine instantane Übertragung von diesem Bargeld. Beides ist neu, beides ist wichtig, und beides ist sehr anders als eine Kreditkarte.

Der Grund, warum man seinen Vornamen, Nachnamen, Blutgruppe, und eine Haarlocke des erstgeborenen Kindes bei jeder Online-Überweisung angeben muss, ist nicht, weil alle Banken böse sind. Der Grund ist ein viel einfacherer: Gegenparteirisiko. Die Bank muss wissen wer mit wem Geschäfte macht, da dank Kreditgeld immer die Möglichkeit eines Konfliktes (und somit auch eines Betruges) besteht. Bei Bargeld gibt es diese Konfliktmöglichkeit nicht, deshalb braucht es bei Bargeld auch keine Identifikation der Gegenpartei. Derjenige, der das Bargeld hält, hat das Geld. Jeglicher Transfer findet im physischen Raum statt, das Zeitfenster, in welchem betrogen werden kann, beschränkt sich auf das Zeitfenster der Warenübergabe.

Physisches Geld und physische Güter können nicht elektronisch überwiesen werden. Nur Einträge in digitalen Schuldbüchern können elektronisch überwiesen werden, und genau dies führt unausweichlich zu Konflikten: diese Einträge können falsch sein, oder doppelt, oder im Nachhinein rückgängig gemacht werden. Aufzeichnung ist nicht gleich Realität; Versprechen ist nicht gleich Ware. Dieser Unterschied ist die Essenz des Kreditkartenbetrugs. Fiat-Geld löst dieses Problem nicht. Fiat-Geld ist nur ein Eintrag in einem Schuldbuch, somit ist der beschriebene Konflikt vorprogrammiert.

Bitcoin löst dieses Problem, denn Bitcoin ist ein “digital bearer asset”: ein digitales Gut, welches man selbst “halten” kann. Der Wert steckt in der Information selbst. Die 12 Wörter deiner Seedphrase sind nicht ein Passwort zu einem Account, nein, diese 12 magischen Wörter sind der Wert an sich.

Zum ersten Mal seit der Geschichte der Menschheit haben wir Bargeld ohne physischen Körper. Die finale Form des Geldes: Information selbst. Wir sollten uns auch daran erinnern, dass Geld genau darum existiert, um seine Gegenpartei nicht kennen zu müssen. Wenn man seine Gegenpartei kennt, kann man sich auf Reputation und Kredit verlassen.

Geld ist für Fremde—ja sogar Feinde—welche Handel dem Konflikt bevorzugen. Geld ermöglicht und skaliert Gesellschaft: ein friedliches und symbiotisches Miteinander, ohne jeden Kunden und Handelspartner persönlich kennen zu müssen. Das Internet ermöglicht und skaliert Kommunikation: den Austausch von Information, Gedanken und Worten, ohne jeden Denker und Sprecher persönlich kennen zu müssen.

Die Kombination von gesundem Geld und globaler Kommunikation ermöglicht eine globale Re-Dezentralisierung: kleine Shops, kleine Services, Spezialisierung und Wertespeicher—ohne Schnickschnack, Spionage und Datenkrake.

Die Zukunft ist effizient, direkt, organisch, dezentral, peer-to-peer, bottom-up, und value-for-value. Gesundes Geld erlaubt Expertise. Kommunikation erlaubt Austausch. Lightning erlaubt sowohl globalen als auch lokalen Handel mit gesundem Geld, ohne Mittelsmänner. Direkt, unmanipuliert und mit Lichtgeschwindigkeit. Und das ändert alles.

This text was written at 778,663 and published originally in print for the second issue of the EINUNDZWANZIG magazine. You can buy a copy at einundzwanzig.shop

Writing

Thu, 04 May 2023 00:00:00 +0000

Writing, for some reason, is one of the most powerful things you can do.

I wrote a personal mission statement a couple years ago. They say you should write things down. They say the pen is mightier than the sword. They say that the Logos is sacred. They say “ask, and you shall receive.” They are all right. Today, I received.¹

I guess I’ll continue writing.²

788,258 ↩
6/21 ↩

Bitcoins Are Not Mined, They Are Issued over Time

Wed, 12 Apr 2023 00:00:00 +0000

Out of all the misconceptions when it comes to Bitcoin, the misconception that “miners” are creating “bitcoins” is probably the most asinine one.

No, miners are not creating bitcoins. Miners are trying to create valid blocks and are rewarded by the Bitcoin network with newly issued sats if they succeed. This reward is only paid during the network’s bootstrapping phase.

Why is this differentiation important? It is important because Bitcoin’s issuance schedule is completely unrelated to its energy use. It is related to time and time only.

It doesn’t matter how many machines “mine” bitcoin; the same amount of bitcoin will be issued over time.¹

Bitcoin’s energy use is related to security and fair distribution of coins, not creating more coins. The same amount of coins would be issued over the same amount of time, even if Satoshi Nakamoto had remained the only person interested in mining bitcoin:

21 million coins, issued in 10-minute intervals, over the course of ~131 years.

If the interest for an open, borderless, transparent, limited, weightless, divisible, digitally native, and easily verifiable electronic cash would’ve stayed with Satoshi and Satoshi only, the energy use of the Bitcoin network would be the energy use of a single CPU.

Bitcoin’s energy use is a measure of interest; its reward mechanism is a distribution mechanism. When it comes to issuance, the higher Bitcoin’s energy use, the fairer the initial distribution of coins.

Bitcoin’s energy use is not a measure of how many of the supposedly useless coins are being produced. The amount of new coins being issued as well as the pace of issuance was fixed from the beginning. The block reward is a mechanism to distribute the total supply of 21 million coins as fairly as possible, without any reliance on a central authority.

Looking at Bitcoin’s issuance schedule should make it immediatly obvious that coins are issued over time, independent of energy use.

If you are offended by Bitcoin’s energy use because you hate the little orange coins that are supposedly being mined, I have bad news for you: the same amount of bitcoins would be issued over the same amount of time, even if Bitcoin’s kilowatt-hours would be close to zero. The same amount of sats would exist, and surprisingly, the network could be used by the same amount of people as it is today. It would just be centralized, insecure, easily influenced, easily altered, prone to censorship, prone to corruption, and catering to special interests.²

Saying that you want the Bitcoin network to use less energy exposes you as either naively uninformed, dangerously authoritarian, or both. A decrease in Bitcoin’s energy use is a decrease in security, fair distribution, and resistance to hostile alteration. If you are cheering for a reduction in hashrate you are cheering for centralization and ease of corruption.

Saying that you hate Bitcoin because it uses energy is like saying that you hate turtles because they grow shells.

“Wouldn’t it be great if all the turtles go naked, so that any predator could easily swoop down and swallow them whole?”

That’s you.

If you think that Bitcoin is useless, any energy that Bitcoin uses will seem like a waste. If you think that Bitcoin is useful, the question as to how much energy it should use is as unanswerable as how many Christmas lights or tumble dryers are enough. You can’t answer such a question; only the distributed cognition of the market can answer that question.

With all that being said, allow me to present a three-step program that will allow you, dear reader, to get less triggered regarding Bitcoin’s energy use going forward:

Step 1: Check your financial privilege.
Step 2: Understand the necessity of proof-of-work.
Step 3:³ Understand the genius that is the difficulty adjustment, which ensures that Bitcoin uses a certain amount of energy, always and forever, into the future:

…exactly the right amount.

All charts are (CC0) by the Bitcoin Wiki and published under a Universal Public Domain Dedication license. ↩
But hey, maybe that’s exactly what you want? ↩
Step four is to start stacking sats or to cry exponentially harder. The choice is yours. ↩

Purple Text, Orange Highlights

Tue, 04 Apr 2023 00:00:00 +0000

Not too long ago, I tried to paint a picture of what a vision for a value-enabled web could look like. Now, only a couple of months later, all this stuff is being built. On nostr, and on lightning. Orange and purple, a match made in heaven.

It goes without saying that I’m beyond delighted. What a time to be alive!

nostr

Here’s the thing that nostr got right, and it’s the same thing that Bitcoin got right: information is easy to spread and hard to stifle.¹ Information can be copied quickly and perfectly, which is, I believe, the underlying reason for its desire to be free.

Easy to spread, hard to stifle. That’s the base reality of the nature of information. As always, the smart thing is to work with nature, not against it.² That’s what’s beautiful about the orange coin and the purple ostrich: both manage to work with the peculiarities of information, not against them. Both realize that information can and should be copied, as it can be perfectly read and easily spread, always. Both understand that resistance to censorship comes from writing to many places, making the cost of deletion prohibitive.

Information does not just want to be free, it longs to be free. Information expands to fill the available storage space. Information is Rumor’s younger, stronger cousin; Information is fleeter of foot, has more eyes, knows more, and understands less than Rumor.

Eric Hughes, A Cypherpunk’s Manifesto

Nostr is quickly establishing itself as a base layer for information exchange, one that is identity-native and value-enabled. It is distinctly different from systems that came before it, just like Bitcoin is distinctly different from monies that came before it.

As of today, the focus of nostr is mostly on short text notes, the so-called “kind 1” events more commonly known as tweets.³ However, as you should be aware by now, nostr is way more than just an alternative to twitter. It is a new paradigm. Change the note kind from 1 to 30023 and you don’t have an alternative to Twitter, but a replacement for Medium, Substack, and all the other long-form platforms. I believe that special-purpose clients that focus on certain content types will emerge over time, just like we have seen the emergence of special-purpose platforms in the Web 2.0 era. This time, however, the network effects are cumulative, not separate. A new paradigm.

Let me now turn to one such special-purpose client, a nostr-based reading app.

Reading

I’m constantly surprised that, even though most people do read a lot online, very few people seem to have a reading workflow or reading tools.

Why that is is anyone’s guess, but maybe the added value of such tools is not readily apparent. You can just read the stuff right there, on the ad-ridden, dead-ugly site, right? Why should you sign up for another site, use another app, or bind yourself to another closed platform?

That’s a fair point, but the success of Medium and Substack shows that there is an appetite for clean reading and writing, as well as providing avenues for authors to get paid for their writing (and a willingness of readers to support said authors, just because).

The problem is, of course, that all of these platforms are platforms, which is to say, walled gardens that imprison readers and writers alike. Worse than that: they are fiat platforms, which means that permissionless value-flows are not only absent from their DNA, they are outright impossible.⁴

Nostr fixes this.

The beauty of nostr is that it is not a platform. It’s a protocol, which means that you don’t have to sign up for it—you can create an identity yourself. You don’t have to ask for permission; you just do, without having to rely on the benevolence of whatever dictator is in charge of the platform right now.

Nostr is not a platform, and yet, powerful tools and services can be built and monetized on top of it. This is good for users, good for service providers, and good for the network(s) at large. Win-win-win.

So what am I talking about, exactly? How can nostr improve everyone’s reading (and writing) experience?

Allow me to paint a (rough) picture of what I have in mind. Nostr already supports private and public bookmarks, so let’s start from there.

Imagine a special-purpose client that scans all your bookmarks for long-form content.⁵ Everything that you marked to be read later is shown in an orderly fashion, which is to say searchable, sortable, filterable, and displayed without distractions. Voilà, you have yourself a reading app. That’s, in essence, how Pocket, Readwise, and other reading apps work. But all these apps are walled gardens without much interoperability and without direct monetization.

Bitcoin fixes the direct monetization part.⁶
Nostr fixes the interoperability part.

Alright, we got ourselves a boring reading app. Great. Now, imagine that users are able to highlight passages. These highlights, just like bookmarks now, could be private or public. When shared publicly, something interesting emerges: an overlay on existing content, a lens on the written Web. In other words: swarm highlights.

Imagine a visual overlay of all public highlights, automatically shining a light on what the swarm of readers found most useful, insightful, funny, etc.

Further, imagine the possibility of sharing these highlights as a ”type 1” event with one click, automatically tagging the highlighter(s)—as well as the author, of course—so that eventual sat-flows can be split and forwarded automatically.

Value-splits could be realized with Lightning Prisms

Voilà, you have a system that allows for value to flow back to those who provide it, be it authors, editors, curators, or readers that willingly slog through the information jungle to share and highlight the best stuff (which is a form of curation, of course).

Zaps make nostr a defacto address book⁷ of payment information, which is to say lightning addresses, as of now. Thanks to nostr wallet connect (among other developments), sending sats ~~will soon be~~ is already as frictionless as leaving a like.

Value-for-value and participatory payment flows are something that traditional reading apps desperately lack, be it Pocket, Instapaper, Readwise, or the simple reading mode that is part of every browser.

A neat side-effect of a more structured way to share passages of text is that it enables semi-structured discussions around said passages—which could be another useful overlay inside special-purpose clients, providing context and further insights.⁸

Further, imagine the option of seamlessly switching from text-on-screen to text-to-speech, allowing the user to stream sats if desired, as Podcasting 2.0 clients already do.⁹

Imagine user-built curations of the best articles of the week, bundled neatly for your reading pleasure, incentivized by a small value split that allows the curator to participate in the flow of sats.

You get the idea.

I’m sure that the various implementation details will be hashed out, but as I see it, 90% of the stuff is already there. Maybe we’ll need another NIP or two, but I don’t see a reason why this can’t be built—and, more importantly: I don’t see a reason why it wouldn’t be sustainable for everyone involved.

Most puzzle pieces are already there, and the rest of them can probably be implemented by custom event types. From the point of view of nostr, most everything is an event: bookmarks are events, highlights are events, marking something as read is an event, and sharing an excerpt or a highlight is an event. Public actions are out in the open, private actions are encrypted, the data is not in a silo, and everyone wins. Especially the users, those who are at the edge of the network and usually lose out on the value generated.

In this case, the reading case, the users are mostly “consumers” of content. What changes from the producing perspective, the perspective of the writer?

Writing

Back to the one thing that nostr got right: information is easy to spread but hard to stifle. In addition to that, digital information can be copied perfectly, which is why it shouldn’t matter where stuff is published in the first place.

Allow me to repeat this point in all caps, for emphasis: IT SHOULD NOT MATTER WHERE INFORMATION IS PUBLISHED, and, maybe even more importantly, it shouldn’t matter if it is published in a hundred different places at once.¹⁰

What matters is trust and accuracy, which is to say, digital signatures and reputation. To translate this to nostr speak: because every event is signed by default, as long as you trust the person behind the signature, it doesn’t matter from which relay the information is fetched.

This is already true (or mostly true) on the regular web. Whether you read the internet archive version of an article or the version that is published by an online magazine, the version on the author’s website, or the version read by some guy that has read more about Bitcoin than anyone else you know¹¹—it’s all the same, essentially. What matters is the information itself.

Practically speaking, the source of truth in a hypernostrized world is—you guessed it—an event. An event signed by the author, which allows for the information to be wrapped in a tamper-proof manner, which in turn allows the information to spread far and wide—without it being hosted in one place.

The first clients that focus on long-form content already exist, and I expect more clients to pop up over time.¹² As mentioned before, one could easily imagine prism-like value splits seamlessly integrated into these clients, splitting zaps automatically to compensate writers, editors, proofreaders, and illustrators in a V4V fashion. Further, one could imagine various compute-intensive services built into these special-purpose clients, such as GPT Ghostwriters, or writing aids such as Grammarly and the like. All these services could be seamlessly paid for in sats, without the requirement of any sign-ups or the gathering of any user data. That’s the beauty of money proper.

Plagiarism is one issue that needs to be dealt with, of course. Humans are greedy, and some humans are assholes. Neither bitcoin nor nostr fixes this. However, while plagiarism detection is not necessarily trivial, it is also not impossible, especially if most texts are published on nostr first. Nostr-based publishing tools allow for OpenTimestamp attestations thanks to NIP-03, which in turn allows for plagiarism detection based on “first seen” lookups.

That’s just one way to deal with the problem, of course. In any case, I’m confident that we’ll figure it out.

Value

I believe that in the open ~~attention~~ information economy we find ourselves in, value will mostly derive from effective curation, dissemination, and transmission of information, not the exclusive ownership of it.

Although it is still early days, the statistics around Podcasting 2.0 and nostr zaps clearly show that (a) people are willing to monetarily reward content they care about, and (b) the willingness to send sats increases as friction decreases.

The ingenious thing about boostagrams and zaps is that they are direct and visible, which is to say, public and interactive. They are neither regular transactions nor simple donations—they are something else entirely. An unforgable value signal, a special form of gratitude and appreciation.

Contrast that with a link to Paypal or Patreon: impersonal, slow, indirect, and friction-laden. It’s the opposite of a super-charged interaction.

While today’s information jungle increasingly presents itself in the form of (short) videos and (long-form) audio, I believe that we will see a renaissance of the written word, especially if we manage to move away from an economy built around attention, towards an economy built upon value and insight.

The orange future now has a purple hue, and I believe that it will be as bright as ever. We just have a lot of building to do.

NIPs and Resources

That’s a Satoshi quote, of course: “Bitcoin’s solution is to use a peer-to-peer network to check for double-spending. In a nutshell, the network works like a distributed timestamp server, stamping the first transaction to spend a coin. It takes advantage of the nature of information being easy to spread but hard to stifle.” ↩
Paywalls work against this nature, which is why I consider them misguided at best and incredibly retarded at worst. ↩
Refer to the various NIPs to discover the multitude of event kinds defined by the protocol. ↩
Fiat doesn’t work for the value-enabled web, as fiat rails can never be open and permissionless. Digital fiat is never money. It is—and always will be—credit. ↩
In the nostr world long-form content is simply markdown as defined in NIP-23, but it could also be a link to an article or PDF, which in turn could get converted into markdown and posted as an event to a special relay. ↩
…because Bitcoin makes V4V practical. (Paywalls are not the way.) ↩
The Yellow Pages are dead, long live The Purple Pages! ↩
Use a URI as the discussion base (instead of a highlight), and you got yourself a Disqus in purple feathers! ↩
Whether the recipient is a text-to-speech service provider or a human narrator doesn’t even matter too much, sats will flow just the same. ↩
That’s what torrents got right, and ipfs for that matter. ↩
There is only one such guy, as we all know, and it’s this Guy. ↩
BlogStack and Habla being two of them. ↩

Hesitancy

Tue, 28 Mar 2023 00:00:00 +0000

Hesitancy tells you something. I’m not sure what it is, exactly, but it is something. If there wouldn’t be something there would be no hesitancy, all there would be is “fuck yes,” followed by immediate action.

Sometimes—at the best of times—immediate action is all there is. That’s what surfers are after. That’s what everyone is after, really. Being on top of the wave, propelled by forces beyond you, without having to think about it. Some call it flow, which is by definition the lack of hesitancy.

Don’t get me wrong, I am not against deep thought and contemplation. Contemplating things is desired and necessary, it is what sets us apart. But contemplation is not all there is. There’s also gut feeling, excitement, the fact that sometimes you know that you have to do a thing, even though all rational thought speaks against it. And sometimes the most rational of decisions doesn’t feel right, and you don’t know why. But you know it. You feel it.

That’s hesitancy.

Contemplating ghosts of distant pasts.

Bitcoin's Meme Wars

Tue, 21 Mar 2023 00:00:00 +0000

Someone whose star continues to rise once said that “Bitcoin isn’t just memes.” I disagree. It’s all memes, all the way down. Let me explain.

What’s in a meme?

Before we get into the weeds of the matter, let’s take a closer look at the words we are dealing with. According to the American Heritage Dictionary of the English Language, a meme is “a unit of cultural information, such as a cultural practice or idea, that is transmitted verbally or by repeated action from one mind to another.”

The term was coined by Richard Dawkins in his 1976 book and is a nod to the word “gene,” the unit of biological information that is transmitted sexually from one organism to another.

Dawkins realized that cultural information is similar in nature to biological information, spreading and mutating just the same, albeit on a higher level of abstraction. Just like with biological information, the ultimate test for cultural information is survival, and just like biological information, it has to be fit for the environment in order to propagate and keep itself alive.

Some ideas just don’t work if they are out of place or the time isn’t ripe for them. They will quickly die, just like the proverbial fish out of water. Other memes might work for a time, fading away slowly due to gradual changes in the environment or collapsing suddenly due to destructive feedback loops they bring about. Like genes, in the long term, memes only propagate if they benefit the organism-environment.

In the science of ecology, one learns that a human being is not an organism in an environment, but is an organism-environment. That is to say, a unified field of behavior. If you describe carefully the behavior of any organism, you cannot do so without at the same time describing the behavior of the environment… […] The organism is not the puppet of the environment, being pushed around by it. Nor on the other hand, is the environment the puppet of the organism, being pushed around by the organism. The relationship between them is, to use John Dewey’s word, transactional.

Alan Watts

What does that have to do with Bitcoin? Well, you’ll have to ask yourself how the Bitcoin network comes into existence, and once you do that, you’ll realize that Bitcoin isn’t too different from the memes and genes discussed above. Bitcoin is instantiated computer code, a digital organism that pays humanity to keep it alive, as Ralph Merkle so aptly put it. The cumulative work embedded in Bitcoin’s timechain is what makes Bitcoin real and what makes it different from ordinary information. And ordinary computer programs, for that matter. Just like there’s a difference between you and a print-out of your DNA, there’s a difference between the Bitcoin code—the memes that it implements—and the real-world instantiation of Bitcoin.

The Bitcoin network instantiates and validates itself every 10 minutes, block by block, like clockwork. It is these blocks that are the unit of information that is transmitted, and yes, just like with memes, this information is cultural information. The fact that this information is transmitted electronically doesn’t matter; it still embodies the core of the Bitcoin culture, the soul of the network. And just like memes, this information is transmitted by repeated action from one node to another. And before that, from one mind to another.

In the ecological sense, we all transact with Bitcoin, and it transacts with us. If you’ve heard of Bitcoin, if you are aware of the “21 million” meme, Bitcoin transacted with you. Way before you made your first bitcoin transaction.

Memes and their Environment

Bitcoin is people, when it comes down to it. Yes, it’s software, but people have to run the software and, more importantly, decide for themselves what Bitcoin is. There is no authority when it comes to Bitcoin. Thus everyone has to figure out what Bitcoin is independently, and out of the overlap of the different points of view, consensus emerges. This is a constant process because it is not only about what Bitcoin is currently, but it is also about what Bitcoin could be. What Bitcoin should be. That’s what The Blocksize War was all about. A battle for Bitcoin’s soul. A difference in opinion regarding the future and ultimate purpose of Bitcoin. A difference in memetic material, one that ultimately led to a split in the protocol, which led to a split in the network, and a split in the culture.

But even without a split, even when in consensus, the question in regards to “what Bitcoin is” is not clear-cut.

To you, the Lightning Network might not be important, and you’re free to run a pre-SegWit version of Bitcoin. For someone else, dickbutts and farts on the blockchain might not be important, and they might decide to run a pre-Taproot version of Bitcoin (or run a version that disrespects ordinals). Bitcoin is backward compatible, and upgrades are optional precisely because there is no authority to dictate things.

That’s how bitcoin works, and that’s how it will always work, which is why memes are important and why it actually is memes all the way down.

You voluntarily have to opt-in to use Bitcoin. You have to be convinced of the idea first, the idea of accepting sats, of dropping fiat and acquiring corn. Only after you’ve convinced yourself that electronic cash with a fixed supply might be useful will you start accepting it or start saving in it.

The meme “21 million” comes first, and after our brains have been sufficiently infected by the idea, we’ll run the software that brings the 21 million into existence.

Of course, some people—most people, I believe—come to bitcoin in a roundabout way. They think it’s a speculative asset, something that exists to make more dollars, which is to say to make more fiat. Or they discover it via online gambling or other avenues, and this is how their first sats come their way. But even when arriving at bitcoin in a roundabout way, even when bitcoin arrives at your doorstep without you understanding what you are dealing with, you will have to learn how to use bitcoin in a self-sovereign way, or you’re not gonna make it.

Running Bitcoin in a self-sovereign way implies absorbing the memes of Bitcoin. For example, you will have to absorb and agree with “21 million,” or what you’ve got on your hands is not bitcoin, but a shitcoin. Running bitcoin means acting out Bitcoin, which in turn means holding your own keys, running your own node, and agreeing to the core consensus parameters that make bitcoin bitcoin.

Over time, a horizontal meme transfer will take place. Bitcoin will rub off on you. Not only will you be exposed to the ideas that are embedded in Bitcoin; no, you will be part of it all, living the meme by holding the corn, day-to-day, block-to-block.

Bitcoin Zen

Or you won’t. If you disagree with the ideas embedded in Bitcoin’s consensus parameters, you have two choices: fork off, or suffer from Bitcoin Derangement Syndrome. You could also, of course, adapt to the environment and live in symbiosis with it, which is to come to terms with the memetic material embedded in Bitcoin—accepting it, and slowly agreeing with it.

Using the ecological lens sketched out before, Bitcoin and bitcoiners form the organism-environment, influencing each other in 10-minute intervals. The tricky thing is that Bitcoin is both organism and environment, as are we. The Bitcoin meme lives in our brains and our idea of what Bitcoin is—and what it should be—changes over time. The economic extension of us—our sats—live in the environment that is Bitcoin, an environment that we bring about, individually and collectively.

We shape our tools, and our tools shape us. And we use our tools to shape our environment, which, of course, shapes us as well. Culture is a result of this mutual shaping, and what is culture but a multitude of memes?

In Bitcoin, we are dealing with an incredible opinionated tool, one that is intimately wrapped up with us. A tool that creates an environment that is ridiculously hard to change. I would even go as far as saying that some aspects of this strange meme-tool-organism-environment loop are impossible to change, as it would destroy the identity of Bitcoin and bitcoiners alike.

To me, Bitcoin will always be defined by twentyoneism, even if I’m the last one who believes this meme. I’d rather die on the hill of 21 million—alone and in poverty, node in hand, twelve words in my head—than agree to raise the bitcoin supply by 1%. (Mandibles.)

There are those who accept this unchanging environment and those who reject it, which, naturally, leads to a split in culture.

Cultural Splits

We are undoubtedly living through a Culture War of sorts. Left vs. Right, Red vs. Blue, Based vs. Woke, Blue Bird vs. Purple Bird, and furries vs. normal people. It’s hard to pinpoint the fault lines that are the underlying reason for this war. Some believe it boils down to individualism vs. collectivism. Others see it as capitalism vs. marxism, self-regulating order vs. central planning. Others speculate that this mess is related to a decline in religious belief, a result of the Nietzschean assassination of God.

All of these reasons might be valid or partly valid, but for me, as a bitcoiner—as someone who has marveled at the graphs of “WTF happened in 1971” many times—it is hard to point to anything other than the emergency of fiat money as the main underlying reason for the chaos we are living through. To me, it seems obvious that these crazy times are a result of the fiat monetary system and the economic as well as the memetic consequences it brings with it. It is a system that is completely disconnected from reality, an artificial and highly political environment that, whether we realize it or not, is the economic operating system of our world. To me, the fault line of society is best summarized as “bitcoin vs. fiat.”

We are now 50 years into acting out the idea of fiat money. The meme that the nature of base money doesn’t matter, the stubborn conviction that “we owe it to ourselves.” We seem to think that our collective future is a magical golden pot—seemingly without a bottom—that we can borrow from over and over and over again.

I believe that we are in the final stages of the great fiat experiment. Once more, the arrogant kings of this world decided to play God and meddle with forces that are greater than them, greater than us. Once more, we are finding out that printing money doesn’t produce any actual value. Once more, society will transform or outright collapse, as it did in Egypt, Rome, and in many other cultures before ours. And, once more, nature will reassert itself by wreaking havoc and killing off everything that is not in accordance with it. Be it ideas or otherwise.

So when the money failed in the land of Egypt and in the land of Canaan, all the Egyptians came to Joseph and said, ‘Give us bread, for why should we die in your presence? For the money has failed.

Genesis 47:15

This time around, however, the fiat experiment is not locally contained. It’s not the money of a single country that is failing but the meme of fiat money itself.

Printing Money vs. Fixing The Money

Realizing the importance of money, as well as the moral and cultural implications of the nature of money—and the ethics of money production —has altered my worldview irreversibly. Once I realized that money printing is simply wealth redistribution and that centrally planned wealth redistribution is an impossible task—not only computationally, but morally—it dawned on me that confiscation by inflation and other forms of involuntary redistribution is nothing more than roundabout stealing. The fiat system is a system of slavery, and no, this is not an exaggeration.

Here’s the good news, however: Bitcoin fixes this.

This is our meme world, everyone else is just living in it.

There is a certain ethic embedded in Bitcoin, and it is this ethic that forms the cornerstone of the memes we see emerge and propagate. If I had to sum it up in one phrase, it would be this one: “You shall not steal.” If I had to sum it up in one number, it would be, of course, 21 million.

The motivation behind the creation of Bitcoin is undoubtedly political, as “chancellor on brink of second bailout for banks” and various comments by Satoshi tell us. For example, while Satoshi agreed with the statement that “you will not find a solution to political problems in cryptography,” he also mentioned that “we can win a major battle in the arms race and gain a new territory of freedom.” Note the words used in this statement: a territory (environment) of freedom (opposite of slavery).

I would argue that “win a major battle” is an understatement, and I would also argue that the original assertion is wrong, but I’ll come back to that.

Yet even without these comments, even if the message embedded in the Genesis block would be “ooga chaka ooga ooga ooga chaka,” bitcoin would still be political. Yes, the resulting system is apolitical, just like the sunrise is apolitical, but the act of creating bitcoin is a political act. It is a statement, a manifestation of specific ideas, of quality memes.

Contrast the ethic embedded in Bitcoin (fixed supply, no forced redistribution, no free lunch, no bailouts) to the ethic of fiat money (endless supply, centrally planned redistribution, bailouts for friends, everything is made up)—or, even more drastically, the “ethic” of shitcoins, which is just fiat money on steroids (everyone can print their own money, nothing matters, rug-pulls are funny and dickbutts are basically the Mona Lisa).

Is it any surprise that the culture around these phenomena is so different? Or is “you will own nothing and you’ll be happy” simply a downstream effect of the meme that is fiat money? Is the cultural difference between bitcoiners and shitcoiners a natural result of the memes embedded in and brought about by the different organism-environments?

Translated to plain language, the meme of fiat money—the idea that we can and should create money from thin air—is simply saying, “I know better than the market how to allocate money”, which is to say to know better than everyone else what is good and what is bad, what is valuable and what isn’t, what is necessary and what is superfluous.

The question that the fiat system answers is the following: who is allowed to counterfeit currency, and how much? Further, who is allowed to have access to money, and who isn’t? The answer is political and enforced by violence.

The Bitcoin system is answering the same questions, and the answers are as simple as they are ethical: nobody is allowed to counterfeit money, and anyone can access it. No exceptions.

These are two very different ideas, two very different memes. One is implemented in the fiat system; the other is implemented in the Bitcoin system. One is breaking at the seams; the other is chugging along, growing economically, computationally, and memetically—every 10 minutes.

Bitcoin vs. Gold

When it comes to identifying the root cause of many of our ills, gold bugs had the right idea (for the most part). But they had no way to implement their ideas in a meaningful and effective way, a way that works in the networked world of the 21st century. The meme of “sound money” is the right meme, but without a way to act out said meme efficiently, the meme has no way of spreading itself throughout the population.

Here’s the deal, dear gold bugs: We won’t return to a gold standard. Gold has failed in the past, and it would fail again in the future. The usefulness of the “gold standard” meme has come to an end. The remnant of its glorious past will be found in linguistics only.

“Why,” you ask? Well, for starters, the physical body of gold forbids teleportation, which is to say, the electronic transmission of gold. It forbids invisibility, i.e., the plausible deniability of possession. Bitcoin can be teleported instantly and hidden perfectly. It can be held in your head, and nobody can know if you actually hold bitcoin or not. Gold will always be centralized in vaults for logistical reasons alone. Bitcoin doesn’t have to be. Gold will always inflate at a certain rate, as an unknown amount is still underground (and out in space). The amount above ground is unknown as well, as the global supply of gold can’t be audited easily.

Contrast that to bitcoin: absolutely scarce and perfectly auditable. Every 10 minutes, the total supply of bitcoin is audited. Every 10 minutes, its emission schedule is verified. Every 10 minutes, billions of sats are settled, finally and electronically, which is to say at the speed of light. Real, physical settlement. Global and instant, without much cost or friction. Every 10 minutes.

The gold meme will still spread for a while, and that’s okay. People are nostalgic, especially if they are set in their ways. As with scientific revolutions, the monetary revolution that is currently underway will probably spread slowly: one funeral at a time.

I believe, however, that Bitcoin has the power to win the minds and hearts of people very quickly, if said minds are open or culturally aligned enough; or if the change in their environment is drastic enough.

Gradually, then suddenly.

Politics vs. Culture

Let’s return to the assertion that “you will not find a solution to political problems in cryptography.” I mentioned before that I disagree, and here’s why. Politics is downstream from culture, and cryptography in general (and Bitcoin in particular) changes culture.

This should be clear as day to anyone but the most blind observer of the Bitcoin space. The culture around bitcoin is steeped in responsibility and self-ownership (“hold your own keys” & “not your keys, not your coins”), verification and reasoning from first principles (“don’t trust, verify”), long-term thinking and saving for the future (“stay humble, stack sats”), as well as a focus on hard work, integrity, truth, and visible outcomes (“proof-of-work”).

Satoshi, in true cypherpunk fashion, realized that memes have to be implemented to be most efficiently spread, which is why he sat down and wrote the code. It was also the first test regarding the fitness of his ideas, as he mentioned in one of his many forum posts: “I had to write all the code before I could convince myself that I could solve every problem, then I wrote the paper.”

That’s proof-of-work, right there. That’s anti-fiat. Not only talking about it, but doing it. Leading by example. Not only speculating about the ideas you have in mind, the memes you want to see propagate in this world, but implementing them. Which is to say: putting them to the test against reality.

Don’t let your memes be dreams.

Satoshi (paraphrased)

Is it any surprise that bitcoin is spreading into the “sound food,” “sound farming,” free speech, and human rights communities? That bitcoin is quickly and easily understood by people who are literally close to the ground, connected with the base reality of things? Is it any surprise that bitcoin is used and understood readily by those who need it most? By those who are living in countries where the money is failing? By those who are rejected by the fiat system?

It shouldn’t be a surprise. Some cultures have a natural overlap with Bitcoin’s culture, and it’s these cultures that will adopt Bitcoin first. Early examples are the cypherpunk culture, as well as the cultures around Austrian economics, libertarianism, and Muslim finance. As these cultures adopt bitcoin, Bitcoin will, in turn, adopt these cultures and influence them. A mutually beneficial influence, as is required by anything that survives long-term, as is the default for the symbiosis that is nature. The organism-environment that is created by the orange coin and those who hold it wants to survive. Bitcoin: the selfish meme.

Of course, there are also fiat memes. It is what defined our culture for the last 50 years: “fake it till you make it” and “YOLO” come to mind, which, interestingly enough, is the modern version of the Keynesian idea that, in the long run, we’re all dead. Is it any surprise that an environment brought about by fake money results in fake food, fake bodies, fake health, fake medicine, fake relationships, fake experts, and fake people?

Those who sit on the top of the fiat pyramid speak of “useless eaters,” trying to convince us that we don’t need to have ownership of anything, but we’ll be happy all the same. One has to marvel at the slogan: “You’ll own nothing and you’ll be happy.”

“You’ll be a happy little slave,” is what this particular meme is saying. Someone decided that happiness is the ultimate goal to be achieved, and they (and only they) know how to achieve it for you.

``Happiness''

As if happiness was the ultimate goal in the first place, the end-all and be-all, the reason for our existence. What about the pursuit of something meaningful, something that is hard, something that requires sacrifice, which implies pain and suffering?

Every man is happy until happiness is suddenly a goal.

Tame Impala

Or what about the statement by Lagarde that “we should be happier to have a job than to have our savings protected?” That’s an expression of a certain meme stuck in her head, the meme that job security trumps most other needs and that regular people do not need to accumulate wealth. Even worse: it suggests that it’s perfectly fine to steal what regular people managed to save, diligently working over the course of their lives.

There is a reason why we speak of “the rat race” and why this part of our culture is so heavily criticized in art and film. To quote Tyler Durden: “Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war... our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.”

I don’t think that people are pissed off, however. I believe that people are mostly depressed and nihilistic. They don’t see a way out; they are hopeless and have accepted their position in the system—be it consciously or unconsciously.

Nothing shows the drudgery of the fiat rat race better than the short animated movie “Happiness” which is a visual journey of man’s unrelenting quest for fulfillment in the modern world. It puts into pictures what many people fail to put into words. Helplessness, addiction, hopelessness. A crisis of self, a crisis of meaning. A lack of a hopeful vision for the future.

“Quite frankly, it gets quite depressing,” to quote a 44-year-old working-class man who is stuck in the woods alone. “I’ve been trying to formulate a thought, to express it, without breaking down and crying. But I’m not sure to be able to relay it, without crying.”

“So my issue, one of the reasons why I wanted to come out here, was to try and think on the new aspect of my life. In other words: after kids.”

“A person can endure a lot of things, for someone that they love. Trying to endure the same things, just purely for yourself, is not that easy. I’m an electrician. You might think it’s not that hard, but it’s a lot of repetitive tasks. I know everybody has their own work, I know that’s just the way of the world. But for me, to think that I have another 15 years of basically wasting my life, waiting for the weekends. Just the mundane torture of it all...”

Watch the clip if you have the chance. It’s one thing to theorize about the meme of the rat race; it’s another thing to watch a grown man break down crying after reflecting on his life, the system he is embedded in, and the future that this system has in store for him. After wiping away his tears, he goes on to speculate what the reason for his depressive outlook might be: “This place I know the rules. It’s life outside of this place that makes me wanna cry.”

That’s it, isn’t it? Rules and rule changes. If you want to deeply and utterly depress someone, change the rules, and change them often. Force them to do something meaningless. Change the rules arbitrarily. That’s what really demoralizes people: being imprisoned in a system of arbitrary rule changes. No hope for stability and no way out.

World War III will be a guerilla information war, with no division between military and civilian participation.

Marshall McLuhan

The meme is the message.

You know, now I finally get it. About the difference between actual war, and global Guerilla war. Because what we’ve got now is not conventional shooting war. With military honor, military ranks, military activity… This is culture war. We’ve got the troubles. We’ve got the disorder. And now I really know how that works. You know, when the disorder is over, you don’t get to say: ‘I proudly served.’ It doesn’t matter which side you’re on. Because the disorder is a war on the pride. It’s a war on the people’s morale. You don’t get to confront the enemy as an equal. Everybody lives in shadow. It’s always covert. It’s always fake. It’s always trumped up. And no history can be written of it, because it’s all been compartmentalized.

Bruce Sterling

When it comes to monetary policy, the fiat system has no rules. “The rules are made up and the points don’t matter,” to paraphrase Drew Carey. Reality has rules, and once a fiat system gets out of whack enough, it is reality that brings the consequences, not the fiat system itself.

The fiat system is broken; its money is worthless; its culture is depressed and hopeless. If politics is downstream from culture, is it any surprise that our politics is mostly a clown show, focused on appearances and on the short-term only? Where to find hope in the hopeless world of fiat everything? Broken ideas lead to broken environments, which in turn lead to broken organisms. Once man is broken, he will not be able to change his environment in a mutually beneficial way. To the contrary. He will be stuck in a downward spiral of despair and destruction, trying to do “whatever it takes” “at all costs.”

Without Bitcoin, the prospect of our future is bleak. Without bitcoin, you have two options: the black pill of pessimism or the Soma of nihilism.

There is a reason why people say that Bitcoin is hope.

Black Pill vs. Orange Pill

Bitcoin is hope because Bitcoin’s rules are known and stable. The Bitcoin system is insanely reliable, operating like clockwork, with rules that are known and set in stone. It is an environment of iron-clad constraints that are enforced without rulers.

Not only is it the opposite of the fiat system, but it is also its antidote. Not only a lifeboat, ready to be boarded by anyone who is in need, but also a cure, providing meaning and optimism where there was none before.

It’s easy to get depressed once you’ve identified the ills of the fiat system. Many bitcoiners who are filled with optimism today were hopeless and fatalistic before they took the orange pill. Many people still are, Lionel Shriver and most gold bugs included.

But you have to be ready. You can only orange-pill yourself, as they say. Nobody can force Bitcoin down your throat.

You need to have an epiphany, the same epiphany as our 44-year-old electrician in the woods, reflecting on his life. Shortly after his breakdown and his monologue about being stuck in the rat race, he comes to a sudden realization: “I’m gonna have to make a change. It’s not the world that has to change. It’s me that needs to change. It’s my outlook on life.”

Yes. What a Chad.

That's literally how Bitcoin works.

Fiat Mind vs. Bitcoin Mind

The fiat system will not fade away easily, nor will it disappear quietly. Too many people are still infected with the meme of easy money, working bullshit jobs, and living fiat lives. The death of the fiat organism is unavoidable, however. It is self-destructive, and like all animals that are cornered and on the brink of death, it will lash out in a last-ditch attempt to avoid the unavoidable.

“Our great war is a spiritual war,” as Tyler Durden so aptly put it. And we are right in the thick of it.

Piggies by artdesignbysf

With each passing day, it’s becoming more and more obvious that this is a spiritual war. A clash of ideas, a battle of differing worldviews.

Even the final boss of Bitcoin, Augustin Carstens, knows that this is a war. Why else would he, the embodiment of the fiat standard, appear on TV, stating the following?

A few years ago, cryptocurrencies were put as an alternative to fiat money. I think that battle has been won. A technology doesn’t make for trusted money.

Augustin Carstens

If we wouldn’t be wound up in memetic warfare, why would it be necessary to state that a battle has been won?

If we wouldn’t be in the midst of a spiritual war, why would Christine Lagarde, a person that was convicted of negligence and misuse of public funds—a person who is now the President of the European Central Bank—state publicly that we have to regulate Bitcoin at a global level, because, “if there is an escape, that escape will be used”?

Your browser doesn't support HTML5 video. Here is a link to the video instead.

Why would Stephen Lynch assert that bitcoin will “go to zero when we come up with a CBDC that has the full faith and credit of the United States behind it”?

Why would Neel Kashkari, crazy-eyed as he is, go in front of a camera to perpetuate the meme that “there is infinite cash in the federal reserve,” hoping that this statement would instill confidence in the failing fiat system?

Your browser doesn't support HTML5 video. Here is a link to the video instead.

It’s almost impossible to watch these interviews without shaking one’s head. Do these people truly believe what they are saying? Is it malice, or is it ignorance? Or is it simply an outgrowth of the distorted worldview of the fiat mind? Are these people beyond redemption, or could Bitcoin humble even them, putting them on the path of responsibility and fiscal discipline?

Whatever the answer may be, Bitcoin’s mere existence is offensive to their minds, or to any fiat mind, for that matter. Bitcoin invalidates the idea that money has to be created by the state. Its architecture says, “anyone should have access to the monetary system.” Its design says, “we see what you’ve been doing, fiat people, and we will put a stop to it.”

It is ironic that what most fiat people see at first are the battle cries of bitcoiners, screaming “HODL!” and shouting “we will make you obsolete” from the rooftops. They fail to see the deeper truth of these memes, the fact that these memes come from a deep conviction that a mathematically and thermodynamically sound system is preferential to a political one. They don’t hear the humming of the ASICs, nor do they pay attention to the valid blocks that are coming in without fail. Every 10 minutes, whispering quietly:

"You shall not steal."

The loud and boastful surface phenomenon is easy to ridicule and dismiss. The deeply technical, economic, and game-theoretical organism that brings about the 21 million, not so much. Both are growing. Both are intertwined. One can not exist without the other.

Fiat Self vs. Bitcoin Self

Upon first contact, Bitcoin is dismissed by most. In a world ruled by The Fiat Standard, most people are unable to comprehend the orange coin when they initially stumble upon it. I think it’s safe to say that most bitcoiners didn’t “get it” immediately. I certainly didn’t get it at first.

Many a bitcoiner’s journey can be summed up as follows:

What the fuck is this?¹
What the fuck is that?
What the fuck?
The fuck?
Fuck...
All in.

The process of understanding and adopting bitcoin is the process of leaving your fiat self behind. You have to get the fiat memes out of your head and allow the bitcoin memes in. You have to burn off your fiat self and build up your bitcoin self. Day by day, action by action, block by block.

By participating in the system of fiat debt slavery, you reinforce the meme of instant gratification, of discounting the future for the present, of fake money and short-term thinking. By participating in the bitcoin system, you reinforce the meme of sound money, inelastic supply, long-term thinking, responsibility, and inalienable property rights.

You cannot buy the revolution. You cannot make the revolution. You can only be the revolution. It is in your spirit, or it is nowhere.

Ursula K. Le Guin

Don’t get me wrong. There is nothing wrong with working in the fiat mines and humbly stacking sats. It’s one of the most important things you can do. Stacking sats will give you freedom, control, and self-sovereignty. It allows you to maneuver yourself into a position of stability and strength, and before you know it, the simple act of humbly stacking and loving your future self will transform you.

The real battle is a personal one. Quelching the impulse of wanting to have something for nothing. Dropping the habit of immediate gratification and building up a culture of long-term thinking. Rejecting impulsive spending, accepting sacrifice and limitation.

The relationship between you and the world is transactional, as John Dewey taught us. Not only are our physical bodies bound to our physical environments, but we are also bound to each other via the equally real economic environments we choose to participate in. And by each dollar spent and every satoshi saved, we birth our future.

There’s a fork in the road.

The sign on the one side says: “you’ll own nothing and you’ll be happy.” The sign on the other side says: “You’ll own bitcoin, and you’ll be the best version of yourself.”

The choice is yours.

Bitcoin has the power to bring out the best version of yourself because the incentives of Bitcoin are set up in favor of mutual improvement. On an individual level, owning bitcoin requires a change in time preference and responsibility. Ownership implies that you hold your own keys. If you don’t, you don’t own bitcoin, but IOUs. It also implies that you run your own node to verify that you actually hold bitcoin. If you don’t, you’re trusting someone else’s word for it, relying on their view of Bitcoin, their worldview, and trusting that they aren’t lying to you.

Even further, continued ownership implies shouldering the responsibility of providing value to society. Money does nothing but circulate, so you will have to do something that other people find valuable. If you fail to do that, you will quickly find yourself out of bitcoin. Nature will force you to part with your sats, because everyone—including you— has to eat.

Get busy with life’s purpose, toss aside empty hopes, get active in your own rescue-if you care for yourself at all—and do it while you can.

Marcus Aurelius

The Bitcoin path is not an easy path, but a fulfilling one. It is fulfilling because you know the rules, you know the consequences, and you are in charge. It is a path that allows you to construct a life for yourself as you see fit, but you’ll have to do the constructing. It’s a path that allows you to protect yourself from overreach and theft, providing long-term security and stability. But you’ll have to walk it. You’ll have to participate. You’ll have to act it out.

You’ll have to burn off your fiat self, leaving behind the easy answers, the shortcuts, and the fake value. You’ll have to provide something real, be someone real, and suffer the real consequences in case of failure.

Not only does the line between good and evil run through everyone’s heart, but the line between fiat and bitcoin runs through everyone’s heart too. It’s not “us versus them.” It’s our fiat selves vs. our bitcoin selves. Personal responsibility vs. willful ignorance. Systemic fragility vs. long-term stability. You are making a choice with every action, and you have no choice but to act.

There is a fork in the road, and every single one of us has to decide which path to take. The seemingly comfortable path presented by the powers that be, or the bitcoin path: hard, rocky, with its ups and downs, without safety nets, and without bailouts. It’s not an easy path, but it’s a beautiful path. A path that teaches patience, responsibility, and discipline. A path that will humble you. A meaningful path. A path that is worth walking.

It used to be a lonely path, but it is not anymore.
It used to be a crazy path.

Today, walking down the path of more fiat is the crazy path. It is a long walk, a daily struggle. And nobody can do the walking but you. I would love to tell you that I’ll meet you at the top, but I’m afraid there is no top.

I’ll meet you on the road instead.

This article was first published in Citadel 21, issue 21.

h/t to Stephen Chow ↩

Lightning Prisms

Sun, 12 Mar 2023 00:00:00 +0000

One aspect that is still massively under-utilized is the programmability of Bitcoin. While simple things like scheduled payments and automated payment splits do exist, we are undoubtedly still trapped in conventional thinking when it comes to the flow of sats.

I’d like to share a simple idea that was shared with me a couple of months ago in the hopes that it will spread far and wide and, in the best case, that someone will just go ahead and implement it. (Or a better version of it.)

Here is the idea:

All credit to Mr. Kukks, who is now officially out of time¹ to implement it himself.

Lightning Prisms

A Lightning Prism is a construct that allows for “lightning address value split workflows,” to quote the originator.

Here’s the gist of it:

A prism is identified by a lightning address (or similar)
A prism has one or multiple recipients
Another prism can be one of the recipients
Splits are defined programmatically

This simple construct allows for all kinds of use cases and can be implemented on the application layer without any changes to Bitcoin or Lightning.

One obvious use case is value-splits for blog posts and similar long-form writing. Imagine if every blog post (or book chapter) had its own Lightning address, splitting value to author, editor, illustrator, and proof-readers automatically.

The concept of these value splits already exists in Podcasting 2.0, where it is widely applied to podcasts and episodes. One could argue that having a separate identifier for the split construct is the natural evolution of these payment splits, as it is easier to reason about them and chain them together.

Another obvious use case is the splitting of nostr zaps. Imagine that every “quote-tweet” that gets zapped results in an automated payment split, passing on 50% (or whatever the user has configured) to the original note. Or imagine a prism that’s created on-the-fly, splitting zaps equally for everyone tagged in a note.

Sat splits for nostr! What's not to like?

Because payments are forwarded, every prism acts as a proxy of sorts. This can be useful for organizations and individuals alike, as your payment identifier remains the same even if your underlying infrastructure or wallet provider changes.

Issues & Improvements

There are two main issues: fees and privacy. One has to account for fees to pay for the splitting and forwarding, but there’s also the issue that lightning addresses are IP-based, which has certain privacy implications. We could do LNURL over nostr—again, shout-out to Kukks—which brings up the following question: Are Lightning Addresses the right level of abstraction for Lightning Prisms?

In the end, we don’t want to send sats to addresses, but to people. If nostr continues to catch on, it might turn itself into the global address book for these kinds of things, i.e., the go-to place to look up payment information of people, organizations, and other entities. In the future, a prism might have multiple nprofile or npub identifiers as targets, behind which the actual payment information lies.

Identifiers don't necessarily have to be lightning addresses. Npubs or similar would work too!

In any case, at this point in time, I’m not too terribly concerned about implementation details. I’m concerned with a lack of imagination, which is what this post is supposed to address.

Speaking of imagination: why don’t we have any spending wallets that automatically move sats to a different wallet above a certain threshold? I’m more than happy to have some lunch money in a custodial wallet, but once it’s worth three months of rent, I’m not as comfortable anymore. Why can’t the wallet automatically send all excess sats to my fully self-sovereign lightning address once it’s more than a dinner’s worth of sats? Or do a loop-out once a month to move the sats to cold storage?

Anyway, I digress.

One improvement I’d love to see is to provide a way to make Lightning Prisms transparent. In the best case, users should have a way to see how payments are split that is both easy to understand and verify. One possibility would be to broadcast a NIP-33 parameterized replaceable event every time a prism is created or updated. Of course, depending on the use case, it might make sense to keep the final destination(s) hidden from public view.

I’m sure there are more issues and plenty of other improvements to be had. But as always, perfect is the enemy of the good, so let’s talk about practical solutions that can be implemented and used right now.

Implementation

Prisms based on lightning addresses can be built today without much effort. You can even build this yourself without any programming experience using two LNbits extensions: scrub & split. Add satdress on top of it all to give every wallet its own lightning address, and voilà, you’ve got yourself a Lightning Prism! You can even build a nice interface as a wrapper around it, as all of the above can be created programmatically with simple API calls.

I did all that (minus the “build a nice interface as a wrapper around it”) just to play around with the idea. Granted, it’s a bit hacky and probably not the most stable or elegant solution, but it kinda works, and it can be used today.

The blogpost@satprism.com address that is shown above is a working example.² It will split any payments 50/50 to Kukks and myself, forwarding the splits to our respective self-sovereign lightning addresses which are provided by our BTCPay Server instances.

I imagine multiple services being created that implement this properly, charging a small fee for providing said service. (As mentioned above, some sort of fee will be required to pay for routing fees, as payments are forwarded to external addresses.)

My hope is that these kinds of ideas and novel constructs become more prevalent as zaps and similar V4V payments—as well as Lightning in general—become more prevalent. Of course, in the best case, we will have these things natively integrated at the protocol level, but I see no reason why we shouldn’t do a little experimentation with what we have today, even if the solutions are imperfect. Until Bolt12 and similar are widespread, hacking something together that just works is probably not the worst idea.³

Final Thoughts

I expect this idea to find widespread adoption among writers and other content creators, just like the idea of “streaming sats”—and the splits of these value streams—found wide adoption among podcasters.

Special-purpose nostr clients for various content types are already in the works, with SubStack- and Medium-like interfaces like BlogStack and Habla popping up left and right.

What’s still missing is attaching payment information to individual events (as opposed to user profiles) in order for each long-form content to have its own payment information. Maybe it’s as easy as extending the NIP-23 metadata, or maybe it would make sense to have this kind of metadata for other event kinds too.

We’ll figure it out, and by “we,” I actually mean you guys: the developers that sit down to spec out and build stuff.

I’ll be cheering you on while I shitpost on nostr.

I promised Kukks not to talk about it for a couple of weeks so he could go ahead and implement it, but he was preoccupied with improving everyone’s privacy, which is very important, too, of course! In any case, I’m sorry, Kukks, but your time is up! ↩
All prisms shown in this post are working examples: nostr-devs-eat-handsomely@satprism.com does an equal split to all devs mentioned in the note by Quiet Warrior, and dergigi-platobot@satprism.com is a split between the robot and myself. I also took the liberty to create rhr@satprism.com, which does a split for Marty and Matt, and there’s also einundzwanzig@satprism.com for the German-speaking crew. ↩
I created the example prisms manually, so I’m afraid until someone builds a nice interface that allows users to create these themselves, there won’t be an explosion of prisms. I like creating a gazillion lnbits wallets as much as the next guy, but clicking all the buttons to create the actual splits and forwards gets tiresome after a while. ↩

Eggs

Wed, 08 Mar 2023 00:00:00 +0000

We didn’t hear them land on earth, nor did we see them. The spores were not visible to the naked eye. Like dust particles, they softly fell, unhindered, through our atmosphere, covering the earth. It took us a while to realize that something extraordinary was happening on our planet. In most places, the mushrooms didn’t grow at all. The conditions weren’t right. In some places—mostly rocky places—they grew large enough to be noticeable. People all over the world posted pictures online. “White eggs,” they called them. It took a bit until botanists and mycologists took note. Most didn’t realize that we were dealing with a species unknown to us.

We aren’t sure who sent them. We aren’t even sure if there is a “who” behind the spores. But once the first portals opened up, we learned that these mushrooms aren’t just a quirk of biology. The portals were small at first—minuscule, even. Like a pinhole camera, we were able to glimpse through, but we couldn’t make out much. We were only able to see colors and textures if the conditions were right. We weren’t sure what we were looking at.

We still don’t understand why some mushrooms open up, and some don’t. Most don’t. What we do know is that they like colder climates and high elevations. What we also know is that the portals don’t stay open for long. Like all mushrooms, the flush only lasts for a week or two. When a portal opens, it looks like the mushroom is eating a hole into itself at first. But the hole grows, and what starts as a shimmer behind a grey film turns into a clear picture as the egg ripens. When conditions are right, portals will remain stable for up to three days. Once the fruit withers, the portal closes, and the mushroom decays.

The eggs grew bigger year over year. And with it, the portals. Soon enough, the portals were big enough to stick your finger through. And that’s when things started to get weird…

How to build a nostr gm bot

Thu, 19 Jan 2023 00:00:00 +0000

I’ve been bullish on nostr for a while now, but even I am surprised by how swift the ecosystem around this open protocol has been growing. Yes, it’s still early days. But it’s the perfect time to poke around and ~~break~~ build things. How else would you explore and learn?

So, after porting my two bots to nostr, I thought why not write a little guide that ~~helps to spark the bot revolution~~ shows how the sausage is made.

While there is a little bit of plumbing involved, creating a bot that does nothing but post stuff is incredibly straightforward. And best of all, we don’t even have to write a single line of code!

Alright, let’s break it down.

The goal: build a bot that says “gm” every morning.
The approach: run noscl in a cron job that’s set to 6:15 am

That’s it. Simple.

If you have a linux system running somewhere and know your way around the command line you’re basically done already. If you are a normal person and don’t have that, read on.

We’ll use Ubuntu Server, as it is widely available.

7 steps to gm:

1) Create dedicated bot user
2) Roleplay as the bot and install go
3) Set go path
4) Install noscl
5) Create the bot
6) Say “Good morning!”
7) Automate with crontab

1) Create dedicated bot user

We will create a dedicated user on our system that does nothing but post “gm” to nostr. Let’s call him “gmbot”.

sudo useradd -d /home/gmbot -m gmbot

I’ll let you pick the password.

sudo passwd gmbot

We’ll also add this user to the sudoers group:

sudo usermod -aG sudo gmbot

Great, done. On to using the user!

2) Roleplay as the bot and install go

Let’s drive stick shift before we switch to automatic. Switch to the gmbot user:

su gmbot

The nostr client we’re going to use is written in go, which is why we need to install go:

sudo snap install go --classic

If you want to avoid snap, you can also install go from source or via a custom PPA.

Whatever installation method you use, make sure that go works:

go version

If you see an output that says go version go1.19.5 linux/amd64 (or something along these lines) we can move on to the next step. Paths!

3) Set go path

Edit your .bashrc with the editor of your choice…

vim ~/.bashrc

…and set the go path by adding the following at the end of the file:

# Set go path to user's home directly
export GOPATH=$HOME/go
export PATH=$PATH:$GOROOT/bin:$GOPATH/bin

Save, exit, and load it up:

source ~/.bashrc

4) Install noscl

As mentioned before, we’re going to use fiatjaf’s noscl client to post notes and other stuff. Install the latest version via go install:

go install github.com/fiatjaf/noscl@latest

This will install noscl for your “gmbot” user, as we’ve set the install path to the user’s home directory. Neat!

Now try it!

noscl

Here’s what it will spit out:

> can’t open config file /home/gmbot/.config/nostr/config.json: 
> open /home/gmbot/.config/nostr/config.json: no such file or directory

Uh-oh, that’s not good.

The config directory does not exist, so noscl can’t create the config file it needs. Creating the directory fixes this!

mkdir -p ~/.config/nostr

Now noscl should work. Run it again…

noscl

…and you should see a “usage” text as follows:

Usage:
  noscl home
  noscl setprivate <key>
  noscl sign <event-json>
  noscl verify <event-json>
 ...

We’re going to do a noscl setprivate next, which will put the private key of our bot into the config file, effectively creating the bot account on the nostr protocol. (Side note: if an account is created in the woods, but never publishes a note, does it even exist?)

5) Create the bot

Every nostr account needs a private key. No key, no message signing, no posting “good morning.” Simple as that.

You can create the keys of your bot by rolling some dice. Don’t have any dice handy? Well, that sucks.

Luckily, noscl can generate keys too. So let’s use that to generate the private key for your bot.

noscl key-gen

It will produce an output like this:

> seed: armed birth test cargo ... orchard autumn
> private key: fc4b95d1....c5b98bd

Copy-paste the private key and set it via noscl setprivate. Unless you hate yourself. If you hate yourself, type it in by hand.

noscl setprivate <KEY_GENERATED_ABOVE>

You’ll have to use your actual private key, not <KEY_GENERATED_ABOVE>. Easy mistake to make! Also make sure to keep your bot’s private key private. “Not your keys, not your notes” and all that.

6) Say “Good morning!”

Let’s pretend it’s 6:15 am. Time to say “good morning.”

You could try to scream “good morning” into the void, but noscl will scream right back at you, telling you that you have zero relays set up. No relays, no party. We need to add at least one relay to talk to the nostrverse, so let’s add everyone’s favorite relay: your mom.

noscl relay add wss://nostr.mom

If successful, you’ll see something like:

> Added relay wss://nostr.mom.

You don’t have to use this exact relay, and you’re free to add multiple relays. Consult nostr.watch for a list of public relays.

Time to publish our first “good morning!”

noscl publish "Good morning!"

Ta-daa! Your bot is alive! You should see something like this:

> Sent event 4869429dcc20bd87567e3370c577793aac58f66bb07d130562738285dee6569f to 'wss://nostr.mom'.

You can use a “nostr explorer” like nostr.guru to look up the event, i.e. the note you just published. It might take a minute to show up, but if everything worked, you should see it staring back at you:

Be kind 1, for everyone you meet is fighting a hard battle.

7) Automate with crontab

Still logged in as the gmbot user, edit the user-level crontab with

crontab -e

…and add the following line at the end of the file:¹

15 6 * * * /home/gmbot/go/bin/noscl publish "Good morning!"

Save the file & exit, and crontab should tell you that it is installing a new crontab. Very kind of crontab, but also very redundant.

> crontab: installing new crontab

That’s it!

Now every morning—as long as the server that you used to set all this up is running—the bot you created will great the world with a censorship-resistant “Good morning!”

You can use the private key of your bot to update the profile metadata, i.e. set a name, description, profile picture, banner, and so on. You can even give your bot a lightning address, just like I did!

If you found this little tutorial valuable, feel free to give value back by throwing some sats at the bot: ⚡gmbot@ts.dergigi.com

Follow the bot on nostr:

npub1gmgmj6punek0gjp6s26e0d5nfumghmszeg33vgqzs6vhn0x0vq3q5mdaxm

As always, feel free to remix, improve, and translate this guide. It is published under a permissive license, as is all my other stuff.

GM 🌅🤙

If you’re having trouble making sense of the crontab syntax, crontab.guru is a useful tool. ↩

Displays

Fri, 30 Dec 2022 00:00:00 +0000

Displays rule our world. They dictate our lives, replace our jobs, facilitate our interactions, and filter our world.

One day, many years ago, I went to a shopping mall, which is something I usually don’t do. I still remember this day because it was the first time I’d seen large touchscreen displays where McDonald’s cashiers should’ve been. I knew that this day would come, obviously. As a technologist, I knew about these touchscreen terminals. Knew that they would come. Knew that they would replace the people that would stand behind the counter to take your order. I knew all this, and still, it took me by surprise.

Today, this is normal, of course. Like it is normal to see a group of people sitting at a table, staring at their individual displays, trapped in their individual bubbles.

I’m guilty of that too, of course. I’m staring at a display as I’m writing these words because I tell myself that it’s more efficient than writing by hand would be.

I’m not hating on efficiency. Or automation, or capitalism, for that matter. Far from it. I’m also not hating on humanity and our urge to make things easier.

I love humanity. We’re smart, powerful, and have awesome technological capabilities. In fact, I believe that we’re too smart, too powerful, and too technologically capable.

Maybe some things shouldn’t be made to be easy. Maybe some things are meant to be hard. Maybe knowing the difference between those two is wisdom.

That’s what we’re lacking, isn’t it. Wisdom. It was never easier to attain knowledge. It was never easier to look up “facts.” And yet, it was never harder to attain wisdom. Or at least it isn’t easier now than it used to be.

Maybe it was always like that. Maybe that’s how it will be, always, for all eternity. But I can’t shake the feeling that it’s harder to find wisdom when it’s hidden behind displays.

Who is watching whom?

Finishing

Thu, 29 Dec 2022 00:00:00 +0000

Finishing things is hard. Starting things is easier. Not easy, mind you. But easier.

I’ve read Start Ugly a while ago, or at least I’ve started to read it. Some things stuck with me. I’m now erring on the side of action, for one thing. I’m not sure if that’s always good, however. Action can be burdensome, too, especially if it leads to a heap of things unfinished.

“Happiness is shipping.”

There’s a lot of wisdom in that phrase. Happiness is shipping because shipping is finishing things, and finishing things is clearing the board and clearing the mind. A cluttered mind is hell. At least for me, at least sometimes.

I’m not sure what the right balance between starting things and finishing things should be since there is wisdom in letting go too. But I probably should get better at shipping things, which means I should get better at finishing.

Editing

Thu, 29 Dec 2022 00:00:00 +0000

Editing is divine, or so the saying goes.

A wise man once said that “the secret to life is send tweet.” There is no place for editing in this philosophy, even though there is an edit button on Twitter now. Oh, what a strange world we are living in. Editing tweets? What the fuck?! What happened to simplicity? What happened to tradition?

Maybe the right approach to editing has always been the ninja edit: glance over it, do a sanity check for ten seconds but don’t overthink it. Fear is not the mind-killer. Overthinking is. And if your editor sucks, the mind-killer is editing.

Yesterday

Wed, 28 Dec 2022 00:00:00 +0000

Yesterday was a good day. Today is not.

It’s funny how this works, isn’t it? Nothing changed. Yet everything is different. Feels different, looks different, smells different. The rational mind tries to argue it away. But emotions say otherwise.

No matter what you do, no matter how hard you try, you can’t go back. And even if you could, you would probably be stuck in a different kind of hell. Groundhog Day and all.

Most people reminisce about the past. Everything was better, brighter, bigger, cheaper. The data says otherwise, as Hans Rosling showed so beautifully. But feelings don’t care about data.

Some things were different, no doubt. The nominal price of a Hamburger was cheaper, no doubt. And yes, people weren’t morbidly obese, or killing themselves with opioids, or horribly addicted to small screens in their pocket, and so on. See, now I’m doing it. Reminiscing about the past.

I still haven’t figured out what to do about days like these. Days when everything sucks. Days so dark that the brightness of yesterday seems borderline unrealistic. Days that make you fantasize about skipping today and tomorrow too.

A long walk does the trick, but on some days, even walking seems like an impossible task. Focusing on the present does the trick too, but some days do not allow for focus or presence. Hugs from loved ones do the trick too, but it’s impossible to properly receive them if you are busy hating yourself. So I guess self-love is the first step. After forgiveness. And after letting go of yesterday.

A Vision for a Value-Enabled Web

Sun, 18 Dec 2022 00:00:00 +0000

We all know that the Web is broken in more ways than one. Clickbait, misinformation, bot farms, anonymous "troll-demons"—the list is as endless as it is depressing. How did we end up here?

I believe there is a single-phrase answer to all these ills. But single-phrase answers are often too simplistic and thus too easily dismissed. So instead, let us first break down the problem into more manageable chunks.

Most of the problems we see online are a combination of:

Incentives (which are broken),
Limitations (which are technical),
Credit (which is a poor substitute for cash),
Attention (which is a poor substitute for value),
Consequences (which are non-existent), and
Identity (which should be optional).

After going through these points one by one, I will sketch out a Thesis that will lay the foundation for the Vision of the value-enabled Web. But first, we have to start by wrapping our heads around the various sub-problems that plague the web. Let's start with the most important one: incentives.

Incentives

Show me the incentives, and I'll show you the outcome.

Charlie Munger

Human action is shaped by the subtle and not-so-subtle structures of the systems we are embedded in. While actions, values, and motivations are individual, the carrots and sticks that are a part of the environments we inhabit—man-made or not—drive collective behavior. If the incentives are broken, everything is.

We shouldn't be surprised by the polarization and outrage maximization that we observe online; it's a natural outcome of the incentive to maximize engagement. We shouldn't be surprised by "you are the product" business models and the walled gardens of subscription hell; it's a natural outcome of the incentive to capture users and user data. We shouldn't be surprised by clickbait headlines and sensationalism; it's a natural outcome of the evolutionary pressure to farm as many eyeballs and brain cycles as possible.

So-called "free" platforms have to sell ads (or worse: user data) to make money. And to sell this data, they have to accumulate as much data as they can and convince their buyers that the data is useful. When selling to advertisers, for example, they have to convince them that people are looking. How do they get more people to look? Outrage, conflict & arguments. Better yet: make people addicted to outrage, conflict, and arguing, and they will maximize "time on site" and other engagement metrics. Advertisers love these! Who cares about truth, wisdom, beauty, nuance, or value? Who cares about honest dialogue if you can maximize clicks instead?

The nature of this conundrum is neither political nor social, at least not exclusively. It might sound outrageous (oh, the irony!), but I believe that a big part of it is due to the technical limitations of our current monetary system and the payment infrastructure built on top of it.

Limitations

Imagine a Being who is omniscient, omnipresent, and omnipotent. What does such a Being lack? The answer? Limitation.

Jordan Peterson

Money has limitations, always. While it used to be possible to buy small items or services for a nickel or even a penny—a pack of chewing gum, a cup of coffee, a shoe shine, a bottle of coke—the smallest payment that was possible was limited by the smallest unit of money, i.e., a penny. For anything smaller than this unit, we had to do batch transactions, selling multiple items for a single penny; or we had to give the item away for free.

Source: What Could You Buy With a Nickel? A century of chump change, by Ignite Spot.

Counter-intuitively, the limitations in cyberspace are even larger. Ask yourself: why can't we buy things online for pennies or fractions of a penny? The answer is quite simple: pennies do not exist online. Never have, never will. Pennies are physical things: coins that you can hold in your hand. You can't attach them to an email. When it comes to pennies, all that we ever had online—all that we can ever have—is information about pennies. We call this information IOUs. An IOU is not something that you own outright, but it's something that you owe to someone else: "I owe you." It is credit, and credit is different from base money. Credit requires trust.

Credit

All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, not from a want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.

John Adams

The problem with credit is that it has various risks. That's why we have to keep track of credit, as well as the creditors and debtors involved. We have to keep track because we have to do accounting and risk management. Once the credit is paid—and the outstanding debt is settled—we don't need this information anymore. The deal is done. The counterparty risk is resolved. There is a reason why "cash is king."

While not all credits are equal, and credit risks are manifold, I want to focus on one in particular: counterparty risk.

Counterparty risk is why institutions that are in the business of dealing with and resolving credit issues, such as VISA & MasterCard, or its newer incarnations à la PayPal and Venmo, have delayed settlement and—due to the necessity of having to keep track of everything—high fees. It is all rooted in counterparty risk, which is a natural byproduct of trying to use conventional currencies for electronic payments. Conventional currencies—no matter if they are sea shells, metal coins, or paper notes—can only be transferred as IOUs when transferred electronically.

The root problem with conventional currency is all the trust that's required to make it work. [...] Banks must be trusted to hold our money and transfer it electronically [...]. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

Satoshi Nakamoto

We could sum it up as follows:

IOUs are credit
Credit relies on trust
Trust can be broken (by fraud, negligence, or by accident)
Fraud leads to chargebacks & insurance constructs
These constructs require KYC and lead to high processing costs¹

All these issues stem from having to use IOUs as money, and we have to use IOUs as money when dealing with conventional currencies (currencies that are not natively digital, i.e., currencies that are not reified by proof-of-work).²

Because of credit, the goddamn fees are too damn high. Because of credit, we were never able to do micropayments online. Because of credit, all the centralized credit institutions need to know their customers, and they need you to know your customers too. Because of credit, you have to identify yourself when using any payment app. Because of credit, every single service you want to pay for online forces you into a contract that binds you for multiple weeks or months because single payments below ~$5 are not economically feasible.

It's all because of credit. Cash does not have these problems.³

Attention

Are you not ashamed that you give your attention to acquiring as much money as possible, and similarly with reputation and honor, and give no attention or thought to truth and understanding and the perfection of your soul?

Plato

The problem of paying attention to the wrong things is not new, but it is particularly pronounced online. Again: the issue is that when dealing with conventional currencies, we have to use IOUs as electronic money. There are two solutions to this problem:

Use something other than money as a proxy currency
Identify your customers and process payments in large chunks of credit (Currently: ~$5 or more)

Both solutions exist. We call the first "attention economy," and the second "subscription hell."

We failed to realize and solve for the fact that our physical money was terribly unfit for cyberspace, and now we are all paying for it—with our attention, among other things. One could even argue that the use of attention as currency is—at least in part—to blame for the loss of nuanced discourse and the increase in polarization, be it political or otherwise.⁴

Time and attention are the ultimate currencies. There is a reason why we "spend" the first and "pay" the latter. And while we do indeed "spend" time and "pay" attention, they are unfit as money because we can't accumulate either. There is a reason why using proper money frees up time and allows for an increase in long-term thinking—both individually and for society at large. Money is as important for capital accumulation as it is for distributed cognition, and if the money is broken, both of these things deteriorate. And with it, so does our time and attention.

By using attention as the de facto currency online, we destroyed depth and nuance, as well as our collective attention spans.

Memes: the weapons of attention warfare.

Now that I hopefully have yours—your attention, that is—I will finally use the single-phrase answer that I refused to use in the beginning: Bitcoin fixes this.

Bitcoin fixes this because, for the first time in history, we have high-velocity, digitally native money without having to rely on credit. Not IOUs. Not credit relationships. Good, old-fashioned money. Cold, hard cash. Better yet: cold, hard cash that is digitally native, can't be debased, and can be sent around at the speed of light. Without counterparty risk.

Consequences

Every unpunished delinquency has a family of delinquencies.

Herbert Spencer

The consequence of bringing real, non-credit-based money to cyberspace can hardly be overstated. While the conversation around Bitcoin is still mostly focused on its limited supply and thus on "Gold 2.0" and other store-of-value metaphors, very few people are focusing on the high-velocity instant settlement part of it all. While Bitcoin does bring consequences to the monetary policies of fiat currencies—and thus to central banks around the world—the more immediate effects are probably to be found in cyberspace.

While the effects are many, I want to focus on four in particular: reduced friction, more peer-to-peer, increased neutrality & systemic stability, and real costs.

Reduced friction: Intermediaries introduce friction. Cash reduces friction. An Italian comedian once said that "the whole point of money is to NOT know your customer."⁵ Note that this is also what made the internet great. The whole point of "the web" was to NOT know who is on the other side of the computer. "True Names" are not required, to quote Vernor Vinge.

Peer-to-peer: All physical money is peer-to-peer technology. If you have a physical coin, it is yours. You are not beholden to anyone when it comes to spending or accepting it. You just have to find another peer that is willing to trade with you. Yes, intermediaries might still exist, but they are less important. They are less important because they are not essential anymore. In a credit-based system, trusted third parties are not optional: they are absolutely necessary. In a cash-based system, they are mostly superfluous.⁶

Neutrality & systemic stability: Protocols, like math and language, are neutral systems. Anyone can use them, and no single person or entity is in charge of it all. The lack of single points of failure is what makes a system resilient. Openness & neutrality provide inclusivity and a level playing field for all. When it comes to money, any lack of openness inevitably leads to financial censorship, and any lack of neutrality inevitably leads to bailouts, Cantillionaires, and systemic instability.⁷

Real cost: Electronic money that is natively digital allows us to attach real costs to actions in cyberspace. It allows us to move away from the exploitative practices of using time and attention as online currencies. It allows us to move away from extraneous punishments such as deplatforming and debanking. It allows us to make destructive actions costly without having to go to the extreme of destroying the public personas of those who slipped up. It allows us to do all these things because real money does not require real identity, and yet has a real cost. Real cost makes spam bots uneconomical and disincentivizes antisocial behavior.⁸

Identity

It is funny about money. And it is funny about identity. You are you because your little dog knows you, but when your public knows you and does not want to pay for you and when your public knows you and does want to pay for you, you are not the same you.

Gertrude Stein

Identity is prismatic. You act differently in a bar on Friday night than at church on Sunday. You are a different you in public and in private, and you are a different you at work and at home. Your behavior adjusts depending on social circles and circumstances. What's offensive to some is casual banter to others; what's outrageous and career-ending in a public political debate can be the cause for laughs and a good time at a comedy club. Identity isn't singular. Identity is prismatic.

Cyberspace flattens both time and space, dissolving the prismatic separations that we are so used to in meatspace. The guy replying to your tweet might be trolling, might be a bot, might be 12 years old, might be heavily intoxicated, or all of the above. You don’t know, and that’s a feature, not a bug.

Some ~~boomers~~ people bemoan the armies of "anonymous troll-demons," seemingly incapable of dealing with the roughness of pseudonymous online discourse.⁹ They want to fix the problem in an old-school way, forcing everyone and anyone to show their face and attach their meatspace identity to their online profiles. Those who grew up with and in between trolls—playing countless hours of competitive online games, for example—know that online interactions and online identity are to be categorized differently than offline interactions and identities. "Don't feed the trolls" is a wisdom of online culture, and for good reason.

Forcing KYC on any platform, service, or app is a naive and short-sighted approach to fixing the problem of identity. It is short-sighted because (a) not everyone has an identity, (b) not everyone can show their face or use their legal name without endangering themselves or others, (c) it doesn't stop criminal or toxic behavior, and (d) identity is prismatic, not singular.

Converting cyberspace into a totalitarian surveillance state beyond the imaginations of George Orwell (not his real name, by the way) can't be the solution. That much should be obvious. In case it isn't obvious, remind yourself of the Chinese social credit score system or of the fact that all you needed to do to have your Canadian bank account frozen was to honk twice (or be close to someone who did).

The more subtle approach to solving the problem of identity is with reputation, costly identity creation, and real value. In other words: we should not add our singular government-mandated identities to everything in cyberspace. Instead, we should allow users—anonymous or not—to show the world that they are serious and real.

Value brings consequence to cyberspace.

Michael Saylor

There is an Eastern-European saying: "If you truly want to hurt a man, you have to punch him where it hurts most: his wallet." Michael Saylor has the right idea. The way to disincentivize bad behavior is to add real value to pseudonymous identities. Like a security deposit that is locked up when you check into a hotel; a security deposit that you lose if you act in a damaging way.

Of course, one question remains: who defines "damaging?" User reports lead to mob rule; platform decisions lead to authoritarianism. I'm confident that better mechanisms will emerge over time as larger parts of the web become natively value-enabled, and our identities become disentangled from the monolithic platforms that rule the web at present. We are at the very beginning of these trends. Decentralized identifiers are still unknown to most. Very few people know that sats are being infused into protocols and platforms as we speak. The "value block" of Podcasting 2.0 is one example. The way that sats are used on Stacker News is another one.

The interesting thing about cash is that it is decoupled from identity. You don't have to ask for anyone's permission to receive and spend cash. And because money is one way to express value—the main way, arguably—the free expression thereof is of utmost importance for a free and prosperous society.

In most cases personal identity is not salient. When I purchase a magazine at a store and hand cash to the clerk, there is no need to know who I am.

Eric Hughes

Most transactions do not require identity. Most transactions should not require credit. For most transactions, trusted third parties should be optional. This was the default for thousands of years, and I believe that this should be the default going forward, both in meatspace and cyberspace.

Infusing real value into the online world doesn't mean that reputation is unimportant or can't emerge. Reputation is essential and has emerged already. What the Value-Enabled Web allows for, however, is costliness when it comes to certain actions. One of these actions is building up the reputation of a particular identity in the first place.

Currently, it is cheap to spin up an army of bots to create the impression of reputation (in the form of fake likes and fake followers). Adding value to the account creation and/or verification makes this action costly.

Identity and consequential actions are only one piece of the puzzle. Not all pieces are known yet, let alone in place. Nevertheless, many people are working on various technologies and protocols that might help to fix some of the issues described above. My hope is that—once we understand the problems properly and have the right thesis and vision—we will figure out the details as we go along.¹⁰ ¹¹

Thesis

Anon out of the earth a fabric huge
Rose like an exhalation, with the sound
Of dulcet symphonies and voices sweet,
Built like a temple

John Milton, Paradise Lost

Let's recap: We have seen that the incentives are broken, leading to "you are the product" and "subscription hell" business models. We have seen that, due to the limitations of our monetary system, we were forced to use IOUs (credit) to do business online. We have seen that, thanks to the prevailing business models of maximizing eyeballs and selling advertisements, our attention is farmed, manipulated, sold, and abused.

I believe there is a better way. I believe that, when it comes to selling products and services, cash money will make a comeback. And I believe that—thanks to the consequences that programmable money brings to cyberspace—identity on the web can remain optional while still allowing for reputation and real-world costs to anti-social behavior.

One problem remains: the problem of selling stuff. This particular problem is only a problem in cyberspace because most "stuff" in cyberspace is not scarce in the traditional sense. We can not sell JPGs like we can sell apples, even though plenty of confused people try. JPGs aren't scarce. Apples are. JPGs can be reproduced at zero marginal cost. Apples take time and effort to grow. It is impossible to distinguish between two copies of a JPG. When you load a JPG on your screen, it is a copy of the JPG on the server you’re retrieving it from, and the copy on that server does not go away. An apple only exists once and can't be copied perfectly, let alone at zero marginal cost. Copying something at zero marginal cost leads to a virtually infinite supply of that thing. It doesn't matter if that thing is a JPG, a blog post, or an mp3 file. If it can be copied by anyone quickly, perfectly, and for basically free, the supply of said thing quickly approaches infinity. We move from the analog world of scarcity into the digital world of abundance. Markets don't work in this world. In the words of Jaron Lanier: "Markets become absurd as supply approaches infinity."¹²

Traditional paywalls in the form of "pay 10 cents to read the blogpost" are trying to restrict supply and/or access artificially. It goes against the nature of digital information, which is easy to spread and hard to stifle. "Trying to make digital files uncopyable is like trying to make water not wet," to quote Bruce Schneier.

I will do my best to describe this problem in more detail at some point in the future, but for now, let me try to sum it up as follows: When it comes to JPGs, mp3 files, blog posts, or similar digital artifacts, we have to stop pretending that the files themselves are scarce or precious. They aren't. The humans that create them are. Consequently, we have to find new ways of pricing and monetizing things. New ways of making sure that the value that is generated accrues to the humans that are responsible for the added value, without imprisoning information or users—without trying to make water not wet.

We have to disconnect price from value, and we have to re-think both.

Vision

The vision of the eye is limited, but the vision of the heart transcends all barriers of time and space.

Imam Ali

We now have a money that transcends the conventional barriers of time and space. A money born in and out of cyberspace, a money that allows us to make the value-enabled web a reality.

Bitcoin exists. The Lightning Network exists. Podcasting 2.0 is a thing. Value4value is a thing. But even outside of the world of Bitcoin, a rethinking of traditional models is taking place. People sign up to other people's Substack, Patreon, or Twitch; not to buy a tangible thing but to give value back for the value they receive in return—voluntarily.

Please note that the vision that I attempt to sketch out here is not my vision. A lot of the parts are being developed as we speak, and a lot of the changes in behavior are already happening, albeit at the edges.

The challenge is to make the experience enjoyable and seamless without reintroducing the ills of counterparty risk. We need a technological shift as well as a cultural shift. We are not there yet. Sending people money for information that they can retrieve for free is still a strange concept for most, but the proliferation of new podcasting apps and other "boost" mechanisms clearly shows that the cultural shift is happening. And yes, it is still clunky. It is clunky to enter a lightning address and send sats manually. It is clunky to click the "boost" button and scan a QR code.

Boost! 🚀🎉

But we've come a long way, and the trend is going in the right direction. If we build this right, micropayments will be invisible and transparent, removing the friction of mental transaction costs while giving the user complete control and insight. The new podcast apps that are value-enabled are leading the way.

One trend I observe keenly is the trend of "boosts" and superchats, or privileged direct messages in general. Attaching a monetary value to anonymous or pseudonymous notes is a novel way to show your appreciation directly and clearly. A big "thank you" online—directly and with a costly signal attached. It is a delight to read these small messages. As an early adopter, I have the privilege of glimpsing into the future as I read the messages that are sent to s@ts.dergigi.com every morning. My hope is that, given enough time and improvements, this delight will be ubiquitous.

In general, the trend seems to move towards direct support when it comes to the creation of digital things that can be reproduced at zero marginal cost. Everyone will have to grapple with the fundamental nature of digital information (that it can be reproduced perfectly and for free) as well as the fundamental nature of humans (that they need to eat). Everyone. Even platforms like YouTube and Spotify:¹³

Today, all of these are credit, sent on credit rails. Tomorrow, they could be sats.

What I mean when I say "value-enabled web" is a broad framework for thinking about these technologies and trends, including the open protocols which allow anyone to participate. Just like the traditional web is neither a platform nor a company, the value-enabled web is also not a single new "thing," but rather a collection of protocols that allows for an open ecosystem to flourish. Openness and permissionlessness are what made the web great. The same things will make the value-enabled Web great.

Interoperability and open standards are absolutely essential to create a win-win environment for all. It is harder to do and takes a lot of thought and patience, but it is also the right thing to do. In the long run, positive-sum games beat zero-sum games any day of the week, even if closed platforms might be able to sprint ahead in the short term.

The vision is still blurry, but it gets clearer every day. If someone would force me to write a manifesto describing the vision, it would revolve around the following ideas:

It should be trivial for those who produce value to receive value.
It should be trivial for those who cherish valuable content to send value to those who produced it.
Allow content and metadata to replicate freely.
Allow value to flow freely.
Do not build walls around content or metadata.
Make identity optional.
Allow those who add value to participate in value flows.
Make unethical behavior costly.
Provide tools & services that add value and bring joy.
Use money for monetization, not attention.¹⁴
Sell services, not user data.
Keep exit costs low.
Build on sats, not IOUs.

Businesses should not spend their time role-playing as credit institutions. In the best case, they shouldn't have to know who their customers are in the first place. Oh, the good old days when you could just walk into a store, grab an apple and a newspaper, hand over a couple of coins, and walk out. This is the magic of cash.

This magic still exists in meatspace stores, but it never existed in cyberspace—until bitcoin came along. And thanks to lightning, we finally have a digital bearer instrument—something you can hold in your head, not only in your hands—that has all the properties of cash and is natively digital. This is a big deal. It is a big deal because it allows us to build a value-enabled web without having trusted third parties.

I am still a huge fan of the web—and, of course, the internet in general—but I believe, as all of you do, too, that things could be better.¹⁵ In fact, I know that it can be better, as everyone else knows who is at the forefront of these developments. Once you've received your first streaming payments, it feels beyond antiquated to deal with the legacy payment rails of our fiat world.

The result of using platforms instead of protocols.

I don't want to enter my credit card details into this random website form, I just want to pay in sats. I don't want to sign up for 12 months to use a random internet service, I just want to pay in sats. I don't want to enter my email address or my phone number or solve a CAPTCHA that has me doubting my humanness—I just want to use the service and pay in sats.

I don't want to deal with paywalls, walled gardens, and extractive platforms that go through the futile exercise of building walls around digital files. Information wants to be free, and for good reason. We should cherish the world of abundance that we managed to create for ourselves. We shouldn't fight this abundance. Instead, we should make it as easy as possible to let our scarce money flow toward those who produce value. The people behind Podcasting 2.0 and other pioneers show us what's possible. They are at the forefront of the value-enabled web.

They show us that money can flow as freely as information does today. They show us that there are no barriers to entry when it comes to receiving or sending money. They show us that nobody has to be beholden to platforms or credit institutions.

If we get this right—if we manage to reduce the use of time and attention as currencies online—noise and dependence will be reduced, while freedom and real signal will be maximized.

Further, when anyone can participate in the monetary flows that are generated in online environments—without gatekeepers and sign-up requirements—we can provide more value for more people.

In a value-enabled web, anyone can benefit, not only those who are in control of the servers that farm our time and attention. More prosperity for everyone, not just for those who have credit ratings and bank accounts.

Include anyone in the value flow. Fatten the long tail.

All the attention economy can do is blow up the head. Sat-flows can fatten the long tail.

The vision of a value-enabled web is a return to substance and sanity. A move away from clickbait and attention farming. A counter to Orwellian surveillance, deplatforming, and cancel culture.

A move from winner-takes-all to all-can-win.
A move from maximizing growth to maximizing value.
A move from quantity to quality.
A move away from client-server relationships, which more often than not turn into relationships of masters and slaves, towards peer-to-peer relationships where everyone is on equal footing.

This vision is larger than value4value, although new valuation and monetization models will play a major role. This vision is larger than adding cash micropayments to certain actions, although that will be important for some actions. This vision is larger than programmatic value flows and the automatic disbursement of sats, although a new way to think about royalties is duly needed. This vision is larger than passwordless authentication, using the timechain as an anchor for truth and proof-of-existence, or decentralized IDs & sovereign computing—even though all these things are important and necessary.

The vision of a value-enabled web is one of fairness, openness, positive-sum exchange, and allowing value packets to flow as freely as data packets did in the past. More value, more humanity, fewer bots, less spam, and—hopefully—a reduction of dark patterns and addictive behavior.

It's Day 2 for the internet, and it's time to fix it.

Thanks to Tomer, Allen, Daniel, and my patrons for providing excellent feedback on earlier drafts of this writing. Any parts that are still confusing and incomplete are due to my blurry vision and stubbernness.

Found a typo? Please help me fix it. Are you building something that fits this vision, or want to help? Reach out to vew@dergigi.com

KYC isn’t always a function of evil corporations and/or governments trying to be evil and spying on everyone. When it comes to financial products, it’s often just a guard against credit risk. ↩
Only proof-of-work allows for natively digital money that is trustless and permissionless, i.e., accessible to all and not controlled by a quorum of key holders. ↩
Note that I'm glossing over the fact that all fiat money is credit. Let's just assume, for the sake of arguing for a Value-Enabled Web, that all conventional currencies are still backed by gold. Let's assume that nothing happened in 1971. ↩
The visualization of the political polarization in the U.S. Senate is something to behold: Team Red and Team Blue, drifting apart. Data by Clio Andris, David Lee, Christian E. Gunning, John A. Selden, Mauro Martino and Marcus J. Hamilton, visualization by Mauro Martino ↩
“Good morning, money laundering is beautiful” by Giacomo Zucco, Baltic Honeybadger 2022 ↩
In Bitcoin, trusted third parties are security holes. ↩
Search for “Cantillion effect” ↩
Listen to Michael Saylor explain this in detail on the Bitcoin Matrix podcast. ↩
Jordan, Jordan, Jordan… There is a mute button. There is a block button. Please use it, and don’t feed the trolls. ↩
Notable mentions include TBD’s Web5, Holepunch, ION, and nostr. (I’m sure there are many more, feel free to add them via a PR.) ↩
I wrote the bulk of this post about a month before it was published, so all of this was written before Jack endorsed and funded nostr, and before Elon banned the promotion of it (and other twitter competitors). ↩
Lanier’s book Who Owns the Future describes the problem we face well, but it fails to offer a solution that is viable and practical. In my humble opinion, Lanier tries to make water not wet. ↩
See this and this for YouTube, and this for Spotify, for example. ↩
Bitcoin is unique, as it is the only reliable and battle-tested money that is natively digital and has an unbroken track record when it comes ot the integrity of its monetary policy. No other money can claim this. Consequently, bitcoin is the only sound money in cyberspace. ↩
Mastroianni, Adam, and Ethan Ludwin-Peery. “Things Could Be Better.” PsyArXiv, 14 Nov. 2022. Web. ↩

Bitcoin Is the Rediscovery of Money

Fri, 02 Dec 2022 00:00:00 +0000

Bitcoin is the rediscovery of money. It is money reconsidered. It is the removal of counterparty risk. It is the purest, fastest, soundest money, re-imagined from the ground up. It is computational proof of historical events, building up an incorruptible history without relying on trust.

Bitcoin is the realization that cryptography is not enough. It is the admission that trusted third parties are security holes. It is an impenetrable fortress of validation, telling the world that invalid blocks need not apply.

By reintroducing trust, be it via the linguistic attack that is proof-of-stake, or be it via the regulatory attack that is centralized exchanges and custodians, "crypto" is destroying everything that makes Satoshi's invention great in the first place.

Most people haven't understood yet that Bitcoin is different. It is not a company. It can't go bankrupt. It has no CEO that can be influenced, arrested, or corrupted. It is a force of nature, like the tide coming in and out, like the sun rising in the east. You can have an opinion on it, but your opinion won't influence it in any way. Every 10 minutes, Bitcoin re-asserts itself. Every 10 minutes, it cements a message in its timechain: "you shall not steal."

Bitcoin's monetary policy is set in time, not by decree. It can't be changed. It can't be argued with. It is unrelated to demand, unrelated to energy usage, and independent from politics.

The weak copies that we refer to as "shitcoins" are oblivious to the nature of Bitcoin. They are oblivious to the nature of money, even; believing that "your money has to work for you." Believing that money has to earn some sort of yield; that money itself should make a nominal profit.

No. Your money just has to work, period. Your money should be yours and yours alone, and it should not steal from you.

If your money requires permission to be spent, it is not your money. If your money has counterparty risk, it is not money—but credit. If your money steals from you, it is not your money—but a control and financing mechanism of your government. If your money requires identity, it is not money but a social credit score system.

Money has no yield.
Money has no counterparty risk.
Money is not credit.
Money does not need to "grow."
Money doesn't require identity.
Money has no memory.

"The whole point of money is to not know your customer," as an Italian comedian once said.

Bitcoin is an answer to the moral failings of fiat money and our fiat monetary institutions. "Crypto" is a reincarnation of these failing institutions, replacing the friendly faces of clean-shaven bankers with the shy smiles of unkempt teenagers. Some call it progress. I call it unethical.

Money is as important as it is invisible. The importance of money only comes to the forefront when money dies, something that, arguably, is happening at a global scale as I am typing these words.

We forgot what money is. We forgot the wisdom of old, the importance of honest weights and measures. We forgot that usury is a sin, that love of money for money's sake is the root of all evil. Consequently, we ignored the root of all monetary evil for far too long: the government monopoly on the issuance and control of money.

Money production is an ethical question. The printing of money is a moral failure, and shitcoinery is nothing but money printing hidden behind the veil of confusion, technobabble, and supposed innovation (or worse: altruism).

Bitcoin is honest, fair, and truthful. It is nonviolent and voluntary. It is a lifeboat and an exit, and not to be conflated with the myriad of shitcoins that are riding its coattails.

The immaculate conception, chronological issuance, and organic growth of bitcoin are what sets it apart. Its lack of counterparty risk is what makes it money. Its lack of leadership is what makes it decentralized. Its computational proof of the order of events is what makes it independently verifiable and irreversible. Its difficulty adjustment is what makes it an autopoietic system: capable of maintaining and reproducing itself.

All shitcoins will wither into irrelevance as a consequence of Bitcoin's continued existence. They will become irrelevant because the game of money is a game of liquidity and purchasing power, and in this game, only the strong survive.

The world is rearranging itself. It is rearranging itself because we have forgotten what money is. It is rearranging itself because the current incarnation of "money"—government-issued debt that steals from the poor and gives to the rich—is breaking. And while it is breaking, bitcoin will march on. Every 10 minutes, a new block is found. Every 10 minutes, Bitcoin reasserts itself. Every 10 minutes.

And you can be part of it. You can do the work, educate yourself, hold your own keys, and run your own node. That's all that bitcoin requires of you. A little bit of responsibility.

If you don’t hold your own keys, you don’t hold bitcoin—but IOUs. If you don’t run your own node, you have no say in Bitcoin—you are beholden to someone else’s idea of Bitcoin.

For bitcoin to be your money, you have to hold your own keys, and you have to verify with your own node. And with that, you too can rediscover money. You can rediscover what it means to have deep stability and autonomy. You can put in the work, and you can transform yourself into a sovereign individual.

You don't need to ask for anyone's permission. All you need is some curiosity—or a lot of pain. I hope for your sake that it is curiosity that will bring you to Bitcoin. Bitcoin can kindle curiosity—if you're ready for it. Shitcoins, custodians, and the fiat monetary system will bring the pain.

The choice is yours, and you have all the time in the world to make it. Because Bitcoin is, and that is enough. It is not hiding—but waiting. Out in the open, ready to be discovered. And with every soul that sees Bitcoin for what it is, a larger part of humanity will rediscover what money is.

The Other Side of the Coin

Wed, 30 Nov 2022 00:00:00 +0000

Cryptography is only one side of the coin, and cryptography is not enough. Why?

Cryptography is not enough because cryptography requires secrecy. It requires key holders, and when it comes to a global monetary system, we don't want anyone to hold the "master key."

In Bitcoin, your private key is only one-half of the equation. You also need the so-called public ledger, which records the information that is public to all.

To ensure that public information has integrity—without falling back to cryptography, which requires private information and thus secrecy—we need to use something else.

That something else is proof-of-work: computational proof, not cryptographic proof.

…we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions.

Satoshi Nakamoto

Strong cryptography makes direct attacks virtually impossible, as Bruce Schneier pointed out. The universe will die of heat death before you will be able to brute-force strong cryptography.

Proof-of-work makes direct attacks merely impractical, as Satoshi pointed out. Without the luxury of private keys, we can't use cryptography to construct a shield in cyberspace. We have to use computation directly.

…we proposed a peer-to-peer network using proof-of-work to record a public history of transactions that quickly becomes computationally impractical for an attacker to change if honest nodes control a majority of CPU power.

Satoshi Nakamoto

The proof is in the pudding, i.e. in the public data itself. There are no private keys. There is no secrecy. Everything is out in the open for anyone to look at. Openness allows for public verification, and it is public verification that removes trusted third parties & inspires awe.

Proof-of-work is not wasteful.

That's why Bitcoin is "high art," why Bitcoin Can't Be Copied, and why there is no Bitcoin 2.0. That's why Bitcoin doesn't require a quorum of key holders. Truth is embedded in the data itself. You don't need a key to decipher it.

Bitcoin is the most secure network, not because it has the best cryptography, but because it has the most accumulated computational proof.

Cryptographic algorithms can be copied for free. Computational proof can not. And because the computational proof is entangled with Bitcoin's ruleset and age, and because you and you alone are responsible for enforcing said ruleset, and because the threshold that defines the validity of said computational proof had to grow organically, and because you can neither copy history nor electricity, one can only arrive at one conclusion: there is no second best.

Your browser doesn't support HTML5 video. Here is a link to the video instead.

Cryptography is only one side of the coin. The other side is the creation and verification of computational proof, which is required to have public data that is auditable, integral, and truthful—without relying on trust.

To adopt responsibility for one side of the coin—the cryptographic side—you have to hold your own keys. 12 words: in your head, or on a piece of paper, or stamped into metal, or stored securely on a signing device.

To adopt responsibility for the other side of the coin—the computational side—you have to run your own node. 21 million: never more.

Bitcoin's heartbeat is what connects the two, and what makes the coin whole. Tick-tock, next block. Every 10 minutes. Every 10 minutes. Every 10 minutes.¹

“Amidst attention-grabbing headlines this week that will be talked about for decades, I want to bring your attention to one far more profound and awe-inspiring non-headline: every 10 minutes a new bitcoin block was produced. Every 10 minutes. Every 10 minutes.” —Ross Stevens ↩

Bitcoin ist...

Sat, 26 Nov 2022 00:00:00 +0000

Bitcoin ist 12 Wörter, verschränkt mit dir. Und doch wird es mehr als 12 Wörter brauchen, um dies zu erläutern.

Wenn man ein Dutzend verschiedene Leute fragt, was Bitcoin ist, bekommt man zwei Dutzend verschiedene Antworten. Bitcoin ist sowohl einfach als auch kompliziert. Verschwenderisch, und dennoch effizient. Zu langsam, und trotzdem das schnellste Geld, welches jemals existieren kann. Zu teuer, und praktisch geschenkt.

Es ist ein Wunder, dass Bitcoin überhaupt existiert. Ein Wunder, dass es erschaffen wurde. Ein Wunder, dass Satoshi den Schlüssel zur digitalen Knappheit entdeckt hat. Ein Wunder, dass es sich entfalten durfte, dass es langsam wachsen durfte, im Dunklen, im so-genannten “Dark Web”.

Das Wunder von Bitcoin liegt vor allem darin, dass es allerlei Gegensätze in sich vereint. Wie kann etwas gleichzeitig digital und knapp sein? Veränderbar und unveränderlich? Anonym und transparent? Bitcoin synchronisiert und vereint. Doch was ist es?

Die Frage, oh ja, die ewige Frage: “Was ist Bitcoin eigentlich?” Kann man diese definitiv beantworten? Ich glaube nicht. Ich glaube, dass uns die passenden Worte fehlen, als auch die passenden Konzepte. Somit werden wir uns wohl noch eine Weile mit Approximationen begnügen müssen. Approximationen, welche das Individuum in den Mittelpunkt stellen. Die ewige Frage muss umformuliert werden, da es in der Welt von Bitcoin keine Autoritäten gibt. Bitcoin ist die Autorität, und Bitcoin ist persönlich. Somit wird aus “Was ist Bitcoin eigentlich?” ganz automatisch “Was ist Bitcoin für dich?”

Kollektiv und Individuum—gegensätzlich, und doch vereint. Niemand kann dir sagen was Bitcoin ist, und doch gibt es ihn, den Konsensus—sowohl technisch, als auch philosophisch. Es ist die Aufgabe eines jeden Bitcoiners zu bestimmen, was Bitcoin ist, und was es in Zukunft sein soll. Welchen Code willst du laufen lassen? Welche Konsensus-Parameter überprüft deine Node? Was ist Bitcoin für dich?

Vereinigung von Gegensätzen, Auflösung von Paradoxien—das ist Bitcoin für mich.

Eines der spannendste Paradoxa in Bitcoin ist wohl das Paradoxon des Besitzes. Die Frage, ob man Bitcoins—Sats—überhaupt besitzen kann. Das Umgekehrte ist definitiv möglich: viele Menschen, ich inklusive, sind von Bitcoin regelrecht besessen. Doch mit dem Besitz an sich—dem Besitz von Sats—ist es etwas schwieriger.

Alles an Bitcoin ist Information, jeder Bestandteil ist Text. Bitcoin hat keine Masse, obwohl es von einem physikalischen Prozess in Umlauf gebracht und abgesichert wird. Kann man Information besitzen? 12 Wörter, ein Eigentum? Deine 12 Wörter müssen geheim sein. Wenn sie das nicht sind, ist Besitz unmöglich. Zwölfmal “Bus” ist eine Bitcoin Wallet. Nun ist es auch deine Bitcoin Wallet, lieber Leser. Und wenn Du der Erste bist, der das versteht, dann bist du Millionär. Abracadabra, Bitcoin ist ein Zauberspruch.

Bitcoin ist geheimes Wissen, verschränkt mit öffentlicher Information. Bitcoin verschränkt sich selbst mit Sats, und Sats verschränken sich—wie jede Geldeinheit—mit unserem Leben. In anderen Worten: Bitcoin erschafft sich selbst—als Geld—durch die Einheit mit seiner Geldeinheit. Ohne Sats kein Bitcoin Netzwerk, ohne Bitcoin Netzwerk keine Sats. Ohne Verschränkung keine Einheit, ohne Einheit keine Kaufkraft.

Dein privater Schlüssel—deine 12 Wörter—sind, auf sich alleine gestellt, wertlos. Das gleiche gilt für das öffentliche Kassenbuch, den “public ledger”. Der Wert liegt in der Kombination, in der Verbindung. Nur wenn deine 12 Wörter mit dem Kassenbuch verschränkt sind—wenn dein privater Schlüssel eine UTXO kontrolliert—werden deine Wörter zum Zauberspruch. Bitcoin ist Kontrolle.

Wie zu Beginn erwähnt ist Bitcoin’s Identität unbestimmt, da es keine Autorität gibt welche eine Identität bestimmen könnte. Jedes Individuum muss diese Entscheidung für sich treffen, und aus der Überlappung dieser Entscheidungen bildet sich eine grobe Übereinstimmung, welche Bitcoin’s Identität kristallisiert und ihr Wert gibt. Ohne Übereinstimmung kein Konsens. Ohne Konsens kein Wert. Bitcoin ist Konsensus.

Der Wert liegt in der Seltenheit, aber es gibt nicht nur eine Seltenheit, sondern zwei. Die erste Seltenheit betrifft den privaten Teil, die Zweite den Publiken. Deine 12 Wörter sind einmalig, da der Zufall es so will. Ohne Entropie keine Zufälligkeit. Ohne Zufälligkeit keine Seltenheit. Ohne Seltenheit keine Sicherheit. Bitcoin ist einmalig.

Die zweite Seltenheit betrifft den öffentlichen Teil: das Kassenbuch welches als Zeitstrahl dient. Alle 10 Minuten darf ein glücklicher Gewinner ein neues Stückchen Vergangenheit vorschlagen, und wenn sich alle einig sind, wird jener mit Sats belohnt. Zuerst entscheidet der Zufall, dann das Netzwerk. Aus Chaos wird Ordnung, aus Zufälligkeit unumstrittene Geschichte. Jeder Privatschlüssel einmalig, jeder valide Block ein kleines Wunder. Alle 10 Minuten. Bitcoin ist probabilistisch. Bitcoin ist Zeit.

Es ist die Zeit, welche Bitcoins Geldpolitik bestimmt. Das Politische wurde chirurgisch entfernt und von Mathematik ersetzt. Das Politische wird unpolitisch, Machtstrukturen werden mathematisch. Bitcoin ist Geldmathematik.

Die Mathematik alleine reicht allerdings nicht, denn ihr fehlt der Bezug zur Realität. Nakamoto bezeichnete Bitcoin als “electronic peer-to-peer cash” und es ist das Elektronische, welches das Physikalische ins Spiel bringt. Elektronen flippen Bits, was Zeit und Energie benötigt. Zeit und Energie bilden die Grundlage der Kryptografie—wenn Berechnung weder Zeit noch Energie benötigen würde, wäre jegliche Kryptografie unsicher, jeder Code knackbar, jedes Geheimnis zu erraten. Bitcoin ist physikalisch.

Kryptografie ist allerdings nicht die Geheimzutat von Bitcoin. Kryptografie ist alt, Bitcoin ist neu. Die Geheimzutat ist die dynamische Anpassung, welche Verschränkung erlaubt: von Netzwerk und Sats, Dauer und Zeit, Text und Wert, Geheimnis und Konsensus, Mensch und Maschine, Berechnung und Schwierigkeit. Die Schwierigkeit wird angepasst, der Code nicht angefasst. Bitcoin ist dynamisch.

Diese Dynamik ermöglicht Bitcoin sich mit uns und unserer Welt zu verschränken. Sowohl als monetäres als auch als moralisches Phänomen, denn der Code von Bitcoin ist ein ethischer: du sollst nicht fälschen, du sollst nicht inflationieren, du sollst nicht beschlagnahmen. Kurz gesagt, du sollst nicht stehlen.

Moralischer Code wird zu Computercode, Computercode wird zu Gesetz. 12 Wörter in deinem Kopf können nicht gestohlen werden. Bitcoin muss verdient werden. Das Parasitische hat in Bitcoin nichts verloren. Bitcoin ist Prosperität.

Meine Einsicht, falls ich jemals eine hatte, war und ist, dass Bitcoin als Ganzes zu betrachten ist. Nicht als Vollkommen, sondern als Gestalt, im philosophischen Sinne. Eine Gestalt, welche sich auflöst, sobald man einen einzelnen Teil untersucht, oder, noch fataler, entfernt. Ich glaube, darum ist mir die biologische Metapher immer noch die Liebste. Die Verschränkung mit uns erweckt Bitcoin zum Leben. Aus technologischem Artefakt wird lebendiger Organismus. Auf Mathematik und Physik folgt Spieltheorie und Ökonomie. Bitcoin ist lebendig.

Bitcoin verkörpert Freiheit, Wahrheit, und Vernunft. Jeder ist frei, Bitcoin zu verwenden. Es ist ein freiwilliges System, ohne Zwang, ohne Herrscher. Du hast die Freiheit, es für dich zu nutzen. Du hast die Freiheit, es bleiben zu lassen. Du hast die Freiheit, es zu verändern, zu kopieren, zu verschlimmbessern, zu studieren. Diese Freiheit ist ein integraler Bestandteil des Systems. Ohne diese Freiheit würde Bitcoin nicht funktionieren. Bitcoin ist Freiheit.

Bitcoin wurde ins Leben gerufen, um die Wahrheit zu sagen. Unsere Aufgabe ist es, diese Wahrheit zu überprüfen. Dank Elektronik und Mathematik kann dies automatisch und blitzschnell passieren, aber diese unmenschliche Geschwindigkeit ändert nichts an der unterliegenden Wahrheit, welche sehr menschlich ist. Wer besitzt welche Münzen? Hat jemand gestohlen? Hat jemand versucht zu betrügen? Hat jemand unerlaubterweise Geld gedruckt? Spielen alle nach den Regeln, denen du freiwillig zugestimmt hast? Sind alle Aufzeichnungen intern konsistent? All diese Fragen können binär, ohne das Zu-Rate-Ziehen von Autoritäten beantwortet werden. Die Wahrheit steckt in deiner Full Node, und in den Daten selbst. Bitcoin ist Wahrheit.

Obwohl Bitcoin auf den ersten Blick unvernünftig erscheinen mag, ist es wohl das vernünftigste Geld, welches die Menschheit je hatte. Bitcoin’s Geldpolitik ist eine Rückkehr zur Vernunft: stabil, vorhersehbar und limitiert. Eine Limitierung, welche unausweichlich das Vernünftige auf diejenigen überträgt, die mit Bitcoin interagieren: Individuen, Firmen, Familien, Staaten—und, wenn Satoshi es so will—unsere Zivilisation. Ohne Limitierung keine Stabilität. Ohne Stabilität keine Vernunft. Ohne Vernunft keine Zukunft. Bitcoin ist Vernunft.

Bitcoin muss erlebt werden. Man muss teilhaben und Teil werden, sich verschränken mit dem Biest, sowohl im bildlichen, als auch im technischen und wirtschaftlichen Sinne. Verstehen heißt in Bezug bringen, Beziehung herstellen mit dem bereits verstandenen. Bitcoin kann verstanden werden, da es sicheren Stand erlaubt. Man muss nur den ersten Schritt wagen. Zwölf Wörter sind der erste Schritt.

Sowohl Wörter als auch Geld können einen um den Verstand bringen, vor allem wenn Wörter zu Geld werden. Doch haben wir einmal etwas verstanden, dann haben wir es begriffen. Begriffe helfen uns, Dinge zu er-fassen, sie zu be-greifen. Ohne begreifen kein erfassen. Ohne Erfassen kein Handeln.

Das Handeln ist die Grundlage, sowohl von Geld als auch von Sprache. Wir handeln mit unseren Händen und verhandeln mit unseren Worten, um nicht mit den Fäusten verhandeln zu müssen. Geld skaliert das friedliche Handeln. Ohne Geld kein Handel. Ohne Handel keine Spezialisierung. Ohne Spezialisierung keine Skalierung. Ohne Skalierung keine Zivilisation. Bitcoin ist Frieden.

Geld ist Wert, und Maß, und Maßstab. Wir be-werten und be-messen das, was Gut ist. Wir legen Dinge in die Waagschale, schätzen Wert und beziffern. Wir tun all dies, um abwägen zu können, welche Handlung die nächste sein soll. Gleichwertigkeit bedeutet Stillstand, denn ohne Wert und Bewertung ist jegliches Handeln unmöglich.

Der Handel ist unwiderruflich mit dem Handeln verschränkt, als auch die Sprache mit dem Geld. Doch trotz aller Wertschätzung bleibt jeder Wert immer nur Schätzung, da Wert subjektiv ist und sein muss, sonst wäre der Handel unmöglich. Ohne Unterschied kein Tausch. Ohne Maß keine Differenz. Ohne Differenz kein Handel. Bitcoin ist Maßstab.

Geld und Sprache sind an den Wurzeln verbunden, ja regelrecht verworren. Zwei Seiten der gleichen Medaille, gegossen aus derselben Ursubstanz, und die Gussform ist die Moral. Wir sprechen über jene Dinge, über die es Wert ist, gesprochen zu werden. Wir prägen uns etwas in unseren Köpfen ein, so wie die Köpfe vergangener Könige in Gold eingeprägt wurden. Wir sammeln Wertgegenstände und wertvolle Erfahrungen, um unsere Erfahrungen wiederum in wirksames Handeln ummünzen zu können. Wichtig ist, was Gewicht hat. Das Wichtigste ist schwerwiegend. Auch Geld und Gewicht sind verschränkt, wie der englische Pfund uns wissen lässt. Gewichte müssen ehrlich und gerecht sein; “völlig und recht”, um es mit den Worten des Buches Mose zu sagen. Ohne rechte Gewichte kein Recht. Ohne Waage keine Justiz. Bitcoin ist Maßstab und Richter. Bitcoin ist Gerechtigkeit.

Gerechtigkeit braucht freie Sprache und gutes Geld. Das Gegenteil ist Zensur und Sklaverei, kurzum: Tyrannei. Gut und Böse, gut und schlecht. Das Schlechte wird verworfen, das Gute behalten. Das Gute wird zu Hab und Gut. Das flüssigste Gut wird zu Geld, um Güter zu bezahlen und Schulden zu begleichen. Doch nicht jede Schuld kann mit Geld beglichen werden. Falls Geld nicht reicht, bestimmen Gericht und Glaube, wie etwaige Schuld beglichen werden muss. Geld ist nicht Glaube, Kredit allerdings schon. Die Gläubiger glauben ihren Schuldnern. Glauben, dass die Schuldigen fähig sind, ihre Schuld zu begleichen; nicht mit Beichte oder Erlösung, nein, mit Geld, denn Geld ist das, was gilt.

Schuld und Glaube, Erlösung und Erlös. Wir bezahlen für unsere Sünden, können Lügner nicht für bare Münze nehmen. Wir schenken Aufmerksamkeit, im Gegensatz zum Spanier, welcher dieselbe verleiht, oder zum Engländer, welcher diese bezahlt. Sprache ist von Geld geschwängert, doch wir waren nicht aufmerksam genug, um diese Wahrheit zu schützen. Wahrheit wurde korrupt und aus Geld wurde Währung. Das wahre Geld verschwand und die Währung wurde kaputt.

Mit dem Geld verschwand auch die Zeit und mit ihr unsere Aufmerksamkeit. Es gibt sie wirklich, die Zeit-Diebe. Die grauen Herren, die glatzköpfigen Agenten der “Zeitsparkasse”.¹ Wir kennen sie als Zentralbanken und Teilreserve-Magier, Negativzins und Inflation. Bitcoin ist das Kind, das den Menschen die gestohlene Zeit zurückbringt. Bitcoin ist Momo.

Unsere Geldscheine sind mehr Schein als Geld, nur gültig, weil sonst die Freiheit entfällt. Scheinheilig und unscheinbar als Goldersatz erschienen, nun ohne Deckung und Deckelung, ein Fiat-Fiasko ohne Bezug zu Gerechtigkeit oder Realität. “Es werde Geld”, “es werde Licht”—doch lange funktioniert das nicht. Fiat ist Lüge, Währung ohne Gewähr, erzwungen durch Staatsgewalt mit Polizei und Militär. Bereicherung der Wenigen auf den Kosten der Vielen, weil sie gern Krieg und Geldpolitik spielen. Ein diabolischer Plan, welcher 1971 ins Rollen kam. Vergelt’s Gott Satoshi, wir danken dir sehr. Dank Dir und dank Bitcoin, braucht’s das nicht mehr. Bitcoin ist Erlösung, Helfer in der Not. Bitcoin ist ein Rettungsboot.

Wir sehen und hören, dass Bitcoin Verschränkung ist. Auch im musikalischen Sinne: “Das Ineinandergreifen zweier Phrasen, wobei der Schluss der ersten zugleich der Anfang einer neuen Phrase ist.” Phrasis: das Sprechen, der Ausdruck, die Anzeige. In unserer Petrodollar-basierten Fiat-Welt zeigt uns vor allem dieser den Wert von unseren Sats an. 49 Uhr 37. Bitcoin ist Moskauzeit.²

Die Verschränkung von Sats und Bitcoin begann mit einer Anzeige von Null: Null Dollar, null Euro, null Cent. Erst nach 10 Monaten hatte ein Satoshi einen Wert, zumindest am Markt, nicht nur subjektiv. Am Ende wird die Anzeige wieder Null sein, aber nicht weil Bitcoin wertlos ist, sondern weil es keine Dollar, keine Euro, kein Fiatgeld mehr geben wird.³

Damit beendet Bitcoin die Fiat-Phase dieser Welt, und wir kehren zurück zum Ursprung. Die Anzeige geht zurück auf Null, wie zu Anfang, als Satoshi die erste Node das Licht der Welt erblicken ließ. Was bleibt ist Geld, und Wert, und Wertigkeit, und Bitcoin. Denn Bitcoin ist, und Bitcoin wird bleiben. Weil es stabil ist, und einfach, und verständlich, und sinnvoll, und vernünftig. Doch beginnen und enden muss es mit Dir, und der Verschränkung mit deinen 12 Wörtern.

This text was written at 751,372 and published originally in print for the first issue of the EINUNDZWANZIG magazine. You can buy a copy at einundzwanzig.shop

Dear Crypto & Fiat Bros

Sat, 19 Nov 2022 00:00:00 +0000

It should be obvious by now, but I'm afraid I'll have to spell it out anyway: Bitcoin, not blockchain. Bitcoin, not crypto. Bitcoin, not distributed ledger technology. Bitcoin, not DeFi. Bitcoin, not Web3. Bitcoin, not CBDCs. Bitcoin, not yield farming. Bitcoin, not centralized neo-banks that sell you fractional-reserve paper bitcoin. Bitcoin.

If you think that Bitcoin is dead, you've been fooled by fiat journalists. If you think that Bitcoin is slow, or old tech, or MySpace, or the Model T, you've been fooled by snake-oil salesmen.

In the former case, you are probably feeling smug: "I knew that it was all a Ponzi scheme! Good thing I didn't invest in bitcoin. I told ya'll that it will go to zero!"

In the latter case, you are probably still in shock because the likelihood is high that you just lost all your money. Maybe you are still in denial. Maybe you are angry or even depressed. Maybe your pre-mined world-computer coins are locked up in a centrally controlled staking system, and you have no way of getting them out again.¹ Unfortunately, there is no way to fast-track the five stages of grief. You have to slouch through it all until you finally arrive at acceptance: "I never had bitcoin in the first place, I only had IOUs and paper bitcoin. I was the yield that was being farmed."

Admitting that you've been fooled is one of the hardest things there is. It takes humility, strength, self-reflection, and the swallowing of pride to acknowledge that you've been had. It's easier to blame someone else and double down—or to throw your hands in the air and walk away. It's a harsh truth, and at some point in the future, you will be able to hear it:

You have been fooled, and you have no one to blame but yourself.

If that's too painful right now, fine. Step back. Do something else for a while. Spend some time with your family, or in the woods, or go fishing or something. And once you come back, try to wrap your head around the following: Bitcoin is the signal, and the rest is noise. All of it.

Bitcoin is the signal.

I am not writing this to kick you while you're down. I am writing this because I believe that nobody is beyond redemption. I am writing this in the hopes that some of you, dear crypto bros, will only have to touch the shitcoin stove once. I am writing this in the hopes that some of you, dear fiat bros, will finally understand that bitcoin is not only different from all of "crypto," but that it is different from all other currencies, your beloved government-issued shitcoins included. My message to you is the same:

There Is Bitcoin, and There's Everything Else

You have to understand that Bitcoin is not an app, or a company, or a stock, or an investment. Bitcoin doesn't have a board of directors, or a CEO, or quarterly earnings. There is nobody "behind" Bitcoin.

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Many bitcoiners have strong opinions when it comes to bitcoin vs. “crypto”—and for good reason. One is a breakthrough of enormous proportions. The others are cheap imitations, copy-cats that have been riding the coattails of said breakthrough for way too long, confusing noobs and retail investors alike. “Crypto” is nerds re-discovering money printing and pyramid schemes. Seemingly free lunches propped up by perpetual motion machines that run on technobabble.

Crypto does not compare to Bitcoin. If you want to compare Bitcoin to something else, compare it to fire, the number zero, the wheel, the printing press, or electricity. Yes, it is that important. It is an autopoietic network that is internally stable and can't go bankrupt. The antidote to the corruption of money.

It is an entirely new thing, something that is so profound, so alien, so novel that most people fail to appreciate it. I don't blame them. Most people know nothing about cryptography, or networks, or money, or open protocols. Consequently, most people are easily fooled.

What is so revolutionary about bitcoin?

Bitcoin is absolutely scarce
Bitcoin's issuance is fixed in time
Bitcoin can be stored in your head
Bitcoin can be sent at the speed of light
Bitcoin can be verified by anyone, easily and cheaply

Every single one of these points is revolutionary in itself.

We never had a liquid asset that is absolutely scarce. We never had a man-made currency that didn't have an issuer. We never had a marketable good that was just words, something that still blows my mind to this day: learn 12 words by heart, and you can flee your country with your wealth intact. We never had high-velocity money without having to rely on credit.

Allow me to repeat the last point for emphasis: for the first time in human history, we have a money that is pure information—something that stores value in bits and bytes directly, without having to rely on a trusted third party—and because it is pure information, it can be sent to anyone at the speed of light.

Unfortunately, this killer feature of bitcoin is lost on most people: Bitcoin is not credit. It's not an IOU. Not a promise. Not reliant on any counterparty. Not a liability. Like gold before it, it is not backed by anything. It is the desirable thing itself. It is money. Pure, un-debaseable money.

Whether you're a rekt crypto bro or a friend of fiat, there is one thing that is especially difficult to accept. The one thing that sets Bitcoin apart: it all works without anyone in charge.

Bitcoin is best understood as a force of nature, like the coming and going of the tide, like the sun rising in the east and setting in the west. You can have an opinion on it, but your opinion doesn't have any influence on the phenomenon whatsoever. The tide will come and go, the sun will rise and set, and Bitcoin will produce a new block. Every 10 minutes.

Amidst attention-grabbing headlines this week that will be talked about for decades, I want to bring your attention to one far more profound and awe-inspiring non-headline: every 10 minutes a new bitcoin block was produced. Every 10 minutes. Every 10 minutes.

Ross Stevens

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Source: bitfeed.live

Bitcoin just works. Like clockwork. It works because you don't have to trust anyone. It works because it uses mathematics and physics—the laws of nature—to remove any trust from the system. It works because you can verify anything yourself. It works because it is not an external thing (dictated by someone else) but an emergent thing: brought into existence by relentless validation and verification. It works because you and only you are in charge.

If you aren't in charge, you are not using bitcoin. You are trusting someone else with their interpretation of Bitcoin—or, even worse—you are trusting someone else to hold bitcoin for you.

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. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

Satoshi Nakamoto

Bitcoin was created as a response to the rug-pulls of the fiat world. It is anti-rug-pull technology. But it is only anti-rug-pull technology if you use it right: your node, your rules, your keys, your bitcoin.

Crypto, on the other hand, is fiat on steroids. Worse, it is fiat on methamphetamines. It is the belief that honest money doesn't matter, which is why every project, every person, every exchange, every network, every system, every community, and every jpg needs its own separate form of money. It's economic nihilism.

The two couldn’t be more different. Bitcoin removes seigniorage. Shitcoins re-introduce seigniorage. Bitcoin removes the Cantillon effect. Shitcoins re-introduce the Cantillon effect. Bitcoin removes trust. Shitcoins re-introduce trust. As do centralized financial services motivated by fiat thinking.

But Isn't Bitcoin Dead?

No, it's not dead. It's also not a fad, or suddenly useless, or suddenly worthless. What happened is what always happens: people get complacent, people get greedy, and people fool themselves and others.

By layering trust on top of Bitcoin, you re-introduce central points of failure and systemic risk—for any systems built on top of these central institutions, that is.² This has happened before, and it will happen again. Time is a flat circle.

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Entity	BTC Lost
Mt. Gox	650,000
Bitfinex	120,000
Celsius	105,000
BlockFi	30,000?
Voyager	10,000?
FTX	70,000

Source: Jameson Lopp³

Again, a centralized company failed. Again, it is unclear how much of this failure was due to incompetence, how much due to malice, and how much due to fraud. Again, the Bitcoin network was unaffected. Again, people relied on trust. Again, the rug was pulled.

It should be obvious by now that bitcoin held by someone else is not your bitcoin. It should be obvious that paper bitcoin is not bitcoin. Further, it should be obvious that bitcoin and leverage mix as well as oil and water.

All of this has happened before. And, human nature being what it is, all of this will happen again. People will—again—fail to heed the warnings of the more experienced bitcoiners. People will—again—fail to hold their own keys. People will—again—fall victim to the Siren songs of more gains, more yield, fast riches, and easy money.

A fool and their leveraged bitcoin are soon parted.

Caitlin Long

And when the fools once again lose all their money; and when you, dear crypto bros, get rug-pulled by your dear leader; and when you, dear fiat bros, declare Bitcoin dead once more; and when the 500th bitcoin obituary has been written; Bitcoin will still march on, unhindered.

But What about the Price? Didn't It Crash?

Yes, it did crash. And it will crash again, and again, and again. Like it has in the past.

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As of this writing, the bitcoin price is 16,641 USD. Yes, it went all the way to $65,000, and then it crashed all the way down to $16,000.

Here is what you have to understand: USD price is both important and unimportant.

Here is how price is important: BTC needs to have a price so that the Bitcoin system can secure itself. Price is correlated to hashrate (which is again correlated with security or, more accurately: settlement assurance). It is also a good indicator of global adoption. And yes, we usually use USD to measure the BTC price because, as of this writing, USD is still the unit of account of this world. Sadly.

To see how price is unimportant, let's ask some questions and answer them one by one:

Did the BTC supply change? No.
Did the network stop? No.
Can you still send sats to anyone without having to ask for permission? Yes.
Do holders still hold the same amount of BTC? Yes.
Can you still easily and cheaply verify all of the above? Yes.

From the point of view of the Bitcoin network, nothing changed.

In other words: the rules of the network did not change. Supply is still limited. Every 10 minutes, new transactions are settled. The monetary policy did not change. The properties of the asset did not change. One BTC still equals one BTC.

Bitcoin worked just as well as it does now when the USD price was zero, which was the case for the first ten months of its existence. Without a central issuer, bitcoin had and still has to grow organically in value, distribution, and security, which is why many people—myself included—believe that Bitcoin's history can not be repeated, i.e., that a scarce digital commodity is path-dependent.

Speaking of price: it helps to put things in a broader context when talking about any price in the first place. Nominal price is an expression of relationship, and thus any price depends on the unit you use to measure said price. The economic lens that you use to see through and see the world with.

It is worth noting, for example, that the USD M2 money supply has expanded massively in the last couple of decades. The most recent expansion of over 30% was in large part due to the monetary response to the worldwide lockdowns. In other words: when measuring the value of things in USD, everything is distorted by at least 30%.

Shitcoin printer go BRRR (Source: Porkopolis)

When it comes to economic views, we see with and through the respective currency we are forced to do economic calculations with. Whether our default lens is the USD, the EUR, or the YEN, depends mostly on circumstance and geography. Granted, BTC is not universally useful as a lens yet, but it is useful as a comparison to fiat lenses. It is useful because it provides a counter-balance to the inflationary monetary policies of fiat currencies. It is useful because, from a BTC point of view, it shows that everything is being repriced in sats. Even the stupid shit you bought a couple of years ago.

Some lenses are more useful than others.

Consequently, bitcoiners like to speak of purchasing power because it is irrespective of the nominal value bound to fiat currency measure. Note, for example, that the BTC chart looks very different depending on what you use as measurement, whether its USD (United States dollar), ARS (Argentine peso), NGN (Nigerian naira), VED (Venezuelan bolívar), or—to pick something else entirely—the S&P 500, gold, or barrels of oil.

In the western world, we are especially oblivious to the fiat lens through which we view the world. We are mostly dealing with "stable" currencies, i.e., currencies that are slowly declining in purchasing power. But make no mistake: all fiat currencies are inflating. If money can be printed, it will be printed. The temptation is simply too strong.

Consequently, all fiat monies are monies of decline. And if this decline happens too quickly—When Money Dies—the distortion in prices becomes obvious. And if the distortion gets big enough, all long-term economic calculation—and with it, regular life—breaks down.

Do you think it rose substantially from 2019 to 2022?

The above charts show two things clearly: fiat currencies are designed to lose purchasing power over time. Bitcoin is designed to monetize naturally over time, and, all things being equal, it will continue to monetize.

It will continue to monetize because bitcoin is valuable. It is your money. Nobody can interfere with it. Nobody can debase it. Nobody can take it from you (when stored properly, that is). Nobody can stop you from using it. In a world of de-platforming, de-banking, and CBDCs, having censorship-resistant, unconfiscatable money is valuable in itself. If you disagree with the above, I invite you to Check Your Financial Privilege.

Currently, BTC is ranked #28 worldwide, both as an asset and when compared to fiat currencies. It is #28 now because it crashed, and it crashed because people are greedy, over-leveraged, and there are no bailouts. It seems, however, that despite all of this, bitcoin is continually monetizing.

Due to bitcoin's fixed issuance schedule—its predetermined issuance over time—the only thing that can meaningfully respond to adoption waves is price. How else could an asset monetize naturally—an asset that doesn't have an issuer—but chaotically? Or, to quote Allen Farrington:

"What would it seem like if it did seem like a global, digital, sound, open source, programmable money was monetizing from absolute zero?"

But Bitcoin Doesn't Produce Anything!

Wrong. Every 10 minutes, a new valid block is produced. That's all that matters. And with this block, another chapter of unforgeable history is being written, and the core promise of Bitcoin is kept: "I will not steal from you." Neither through debasement nor confiscation.

If you think that bitcoin should produce anything else—like yield, for example—you are still looking at the world through a fiat lens. Bound to the view that you have to "put your money to work." You did not pause and reconsider the yield from money held.

I empathize with you. I was looking at the world through the same fiat lens not too long ago. I was even bullish on "crypto," believing that an unstoppable world computer would be a neat thing. It took me a very long time to understand that printing money does not enrich society, but does just the opposite.

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In the same way, it took me a very long time to step back and ask myself the following questions, almost like a child: "Why does your hypothetical world computer need its own currency? Why does your company need its own currency? Why does your centralized exchange need its own currency? Why do you need to print your own money for your endeavor to be successful?"

I used to be a crypto bro myself, and it was the difficulty I had when trying to answer these questions truthfully that turned me away from "crypto" and towards bitcoin. And when I was a fiat bro, I didn't even know these questions were worth asking in the first place.

The most difficult thing is to get rid of the fiat mindset, which is to say to step back and ask yourself very simple questions about money: why do we have it, why do we need it, why does it have to be scarce, why can some people print it while most have to work for it, and so on. These are hard questions. Those who run the money printers don't want you to ask, "WTF happened in 1971?" Those who run the shitcoin casinos don't want you to ask, "but where does the yield come from?"

BUT WHERE DOES THE YIELD COME FROM?

But even with all the shenanigans that are currently going on, I'm hopeful. After all, "you can fool some people sometimes, but you can't fool all the people all the time."⁴ More and more people will learn. More and more people will hold their own keys. More and more people will run the numbers.

This assumption is not based on faith. Bitcoin's on-chain data shows certain patterns, which I would summarise as "understanding increases conviction, conviction increases allocation"—or: the more you know, the more you buy.

~73% of sats have been held for more than a year

These "HODL Waves," as they are called, show that an increasing number of people understand the underlying dynamics of, as well as the differences between, fiat monetary policy and Bitcoin's monetary policy, which leads to them holding BTC on their personal or corporate balance sheets, rather than fiat currency.⁵

But the Volatility!

Volatility, volatility, volatility. All this talk about volatility misses the whole point of Bitcoin: deep, systemic stability.

Bitcoin isn't volatile. Human psychology is.

Human behavior is volatile. Bitcoin isn't. Consequently, bitcoin's market price can be volatile. But Bitcoin is not. The Bitcoin network has been operating continually for well over a decade. It is predictable, steady, and reliable. From that perspective, Bitcoin is the most stable thing there is.

Every 10 minutes, a new block is found. Every 10 minutes, the whole system increases in reliability and stability, independent of price swings.

As long as new blocks are coming in, there is nothing to worry about. Once again, the lens you use to look at Bitcoin matters a great deal. Step back. Zoom out. Look at blocks, not price. Time, not yield. Base money, not credit.

But yes, while bitcoin is monetizing, swings in purchasing power are to be expected. The sensible response is to adjust your allocation according to your risk appetite. A 0% allocation is not a sensible position because a 0% allocation is a 100% allocation to assets that have substantial counterparty risk or, even worse, assets that aren't assets in the first place—but liabilities.

But I Missed the Bus!

No, you didn't. We are still very early in the unfolding of the bitcoinization process. Everyone thinks they are late. Everyone thinks that they have missed the bus.

Bitcoin is a hop-on hop-off bus, and round and round it goes.

Most bitcoiners don't think of Bitcoin as an investment. It is a breakthrough technology that allows you to move wealth through space and time. It is not about getting rich in fiat terms. It is an exit, not a detour. It is about measuring your wealth in sats, not USD, or EUR, or any other random shitcoin. Your wealth. Held and controlled by you.

Because of this, it is never too late to use it to your advantage. Just like it's never too late to adopt electricity or the internet. It is never too late to adopt the Bitcoin Standard.

But Bitcoiners Are Mean!

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Do the right thing. Drop your shitcoin bags, whether they are "crypto" or fiat-denominated. Start small. Take responsibility. Learn how to self-custody. Produce value, spend less than you make, and start saving in bitcoin. Start counting your wealth in sats.

Or don't. You can also stay in crypto wonderland, buying ape JPGs and shares of Ponzis built on quicksand. You can once again believe all the lies of the next autistic wunderkind, convincing you that fundamentals don't matter and that principles are worthless. You can also stay in the world of fiat slavery, believing that your money should steal from you (as long as the rate of stealing stays somewhere between 2-9%), that printing trillions out of thin air is sensible monetary policy, and that central-bank digital currencies are a neat idea.

In either case, Bitcoin doesn't care. But when (not if) the next centralized abomination implodes, and when (not if) bitcoin reaches new heights again, and when the mainstream media screams "bubble" again, and when bitcoin's price will once more correct after that, and when fools are once again parted with the coins that they thought they held, remember this: you could've known better. You could've held your own keys. You could've run your own node. You could've stayed humble. You could've stacked sats. You could've listened to the toxic maximalists. You could've read a book or two. You could've stayed away from the shitcoins, and the Ponzis, and the central points of failure. But you didn't. And you have no one to blame but yourself.

Good luck.

Thanks to my patrons for the excellent feedback on early drafts of this letter.

lol ↩
Just look at this clusterfuck. Look at it! ↩
Securing bitcoin’s scarcity: fighting fake bitcoin by Jameson Lopp, Casa Blog ↩
Don’t give up the fight! ↩
"Crypto" has no monetary policy, so it's not even worth mentioning. If you’re still curious, read Lyn Alden’s article or just look at one of these two images. ↩

Bitcoin Is Digital Scarcity

Sun, 02 Oct 2022 00:00:00 +0000

We should treat computers as fancy telephones, whose purpose is to connect people. Information is alienated experience. Information is not something that exists. Indeed, computers don’t really exist, exactly; they’re only subject to human interpretation. This is a strong primary humanism I am promoting. As long as we remember that we ourselves are the source of our value, our creativity, our sense of reality, then all of our work with computers will be worthwhile and beautiful.

Jaron Lanier

It turns out that the killer application for virtual reality is other human beings. Build a world that people want to inhabit, and the inhabitants will come.

Charles Stross

There is much to be said about virtual worlds. The “information revolution,” as it is called, has been going on for multiple decades, and it should be apparent to everyone that our world is becoming more digital by the day.

But what does that mean, exactly? Does it mean that things are transforming into something that is less real? Will absolutely everything dematerialize, ourselves included? Is the rapture of the nerds imminent, and only those who praise the gods of the singularity will be saved?¹

I hope not. While it is true that software is eating the world,² we have to differentiate between the digital and the virtual.

Digital vs. Virtual

As any dictionary will tell you, digital is anything that can be expressed as digits, i.e. any information that can be represented in discrete numerical form. In our modern world of binary encoding, that means everything that can be encoded as zeros and ones.

digital, adjective — (1) (of signals or data) expressed in discrete numerical form, especially for use by a computer or other electronic device.

Not everything that is digital is also virtual. A digital radio is not a virtual radio, it just works differently than an analog radio. Once said radio is put into a computer game, however, it clearly becomes a virtual radio.

virtual, adjective — (1) existing or resulting in essence or effect though not in actual fact, form, or name. (2) created, simulated, or carried on by means of a computer or computer network. (3) not physically existing as such but made by software to appear to do so

According to one dictionary definition, virtual is “anything that is existing or resulting in essence or effect, though not in actual fact or form.”³ A virtual meeting room is not an actual meeting room, but it has the effect of one. It is made of bits and bytes as opposed to brick and mortar, but the meetings that are being held in it, the conversations that are being had, and the decisions that are being made, are still real. The space is virtual—what happens in it is not.

As we shall see, digital money can and will emerge in virtual worlds. In fact, it has emerged many times, in multiple worlds and various forms. To paraphrase Charles Stross: build a world that facilitates trade, and money will emerge.

Virtual Scarcity

As we have seen in Chapter 4, humans have used a multitude of objects as money over the millennia: cattle, salt, shells, bones, pearls, stones, copper, bronze, silver, gold, and other precious metals. While the list of historical monies is long, there is one trait that all functioning monies share: scarcity. After all, if something is extremely easy to find or produce, it isn’t good money, or at least not for long.

Digital goods aren’t naturally scarce. The marginal cost to replicate them is practically zero, as anyone who ever copy-and-pasted something can attest to. For this reason, digital scarcity used to be an oxymoron. If something is digital, it is just information, and information can be easily copied.

Before Bitcoin, all digital scarcity was scarcity by authority—authority that can be circumvented or exploited. It was always simulated scarcity. Virtual, not real.

Without the limitations of physics, digital goods necessitate that a central authority regulates the issuance, access, and duplication of said digital goods. If access isn’t regulated, anyone can simply take the information that represents this digital good and make copies of it (or, sometimes even more problematic: change it). It doesn’t matter if it is the bits and bytes that define the balance of your bank account, the books in your Kindle, the movies in your Netflix library, the songs in your Spotify playlists, or the items in your favorite video game. If access isn’t centrally controlled, people will change things to their advantage. They will update the balance of their bank account and modify in-game items to make their character more powerful. In other words: they will cheat. Digital goods are just information, and information wants to be free—as the unsinkable ships of Pirate Bay and endless leaks and data breaches clearly show. Building a cage around information is anything but easy.

To get a better understanding of digital goods and their scarcity (or lack thereof) we will take a look at the virtual worlds that first spawned them: online games.

A Short History Of Virtual Economies

In-game economies are almost as old as networked gaming itself. In 1995, Julian Dibbell published MUD Money,⁴ which describes how money was introduced in Multi-User Dungeons (MUDs). Coins would appear randomly in these online worlds, so if you stroll around for long enough you would, over time, find enough money to pay for certain goods and services in these games. Randall Farmer, a researcher at MIT who studied the emergence of virtual economies at this time, describes how in a game called Habitat “players could acquire […] funds by engaging in business, winning contests, finding buried treasure, and so on.” He details how players would get a certain amount of tokens every time they log in, and how “they could spend their tokens on, among other things, various items for sale in vending machines called Vendroids. There were also Pawn Machines, which would buy objects back (at a discount, of course).”

'Colossal Cave Adventure' created by Will Crowther in 1975 was one of the first dungeon games.

Money, gold, points, tokens, and coins are constant companions in almost all games. Come to think of it, most of the games that we now consider classics have money-like objects in their virtual worlds: Mario has his coins, Sonic has his rings, and almost every final boss will drop precious items or heaps of gold once he is slain. In RPGs in particular, no matter what kind of creatures you are fighting, you will probably have to acquire gold to upgrade your weapons and armor.

However, when it comes to single-player games, the digital coins you collect are worthless. But once an exchange is facilitated via networked play, things start to get interesting. Players will inevitably trade the virtual treasures they collected over time, whether there are official trading mechanisms in the game or not. All that is required is that the stuff that is found and sold stays around, i.e. that the shared world is persistent.

If a world is shared and persistent, real money and real economies can emerge. While there are many games that had (and still have) vast virtual economies, I want to highlight three in particular: Ultima Online, Diablo 2, and Second Life.

Ultima Online: Planning a Virtual Economy

Ultima Online was released on September 24, 1997, by Origin Systems. It was one of the first MMORPGs⁵ that garnered mainstream attention, attracting over 100,000 players within six months. Like the MUDs before it, the world of Ultima Online is a persistent world, which means that your actions and interactions in the game have lasting consequences for yourself and other players. In stark contrast to single-player games or non-persistent multiplayer games, you can not “save” the state of your game and “load” it at a later point. Everything happens in real time, with real consequences for real people. Consequently, the time and effort players put into leveling up their characters and gathering items and resources are real as well, which, in turn, spawn real economies around these virtual goods.

To quote Zachary Booth Simpson who studied the in-game economics of the game extensively: “Ultima Online, and online games similar to it, offer a unique research platform because, while the commodities traded are virtual, the resulting economies are not simulations.”⁶ Matthew Beller from the Mises Institute echoes this sentiment: “Some economists might dismiss virtual worlds as an application for economics, given that they do not contain any resources that are traditionally considered scarce (lumber, steel, oil, etc.), but a closer inspection reveals that some virtual worlds contain real market economies complete with scarce resources, property rights, entrepreneurship, and exchange.”⁷

The world of Ultima Online allows for spontaneous economic interaction between players. Players are free to trade as they see fit, directly, without restriction in regards to what to trade or with whom. However, some parts of the game’s economy are planned by the game’s designers. For example, players can sell their goods to NPCs⁸, receiving gold in return. Also, players can explore the world and harvest natural resources, e.g. hunt wild animals for fur and meat, cut down trees to gather wood, and so on. Naturally, these computer-controlled aspects of the game have to be pre-programmed: how much of a good is an NPC vendor willing to buy, and for what price? How many rabbits spawn in a certain area? How quickly will a forest regrow?

Originally designed and revised economic flow of Ultima Online.

As always, human players were quick to find patterns that could be exploited. To gain the maximum benefit from exploiting these patterns, many players used macros and scripts to automate what would otherwise be tedious tasks. For example, players would automate the production of goods that netted a laudable profit when sold to NPCs, enabling them to earn money while they slept. And since NPCs would buy anything as long as they had money, players were able to earn more money more easily than the game designers had anticipated, thanks to human ingenuity and automation. To prevent this overproduction, the game designers interfered by limiting the number of items an NPC would buy per hour. Of course, this had some unintended consequences, one of which is described in Simpson’s 1999 research paper: “In order to facilitate these shopkeeper changes, the AI which required the shopkeepers to keep a positive cash flow had to be abandoned. Shopkeepers now effectively print gold in order to pay for the useless goods which are being created by the manufacturers.” Sounds familiar?

As history shows and this example illustrates, planning an economy—virtual or not—is an impossible task. Every interference, no matter how benign the central planners believe it to be, will have unintended consequences and side effects that will beget more interference. If the rules that are supposed to prevent unauthorized copying can be broken they will be broken, whether it is by the players or the gods that control the worlds they inhabit. As we will see over and over again, if the rules are untethered from the physical world, exploits will be found, rules will be changed, and economies will suffer.

Ultima Online is no exception, as Simpson points out: “In the early stages of UO, players discovered an obscure server fault which allowed them to clone certain kinds of items, primarily gold and reagents. Although the programmers discovered this cheat quickly, it took them a long time to fix it. In the interim, the existing UO worlds became saturated with gold. Estimates of the inflation value range from multiples of hundreds of thousands to millions. The hyperinflation destroyed the gold economy and players resorted to bartering and just plain-old charity during this period.”

The same story plays out over and over again, no matter if the worlds are virtual or not. If someone finds a way to create more money cheaply, they inevitably will exploit this advantage, no matter the long-term consequences. As we shall see, this is also true if the money emerges naturally in the first place.

Diablo 2: Duplicating the Stone of Jordan

To me, Diablo 2 is one of the great iconic games of PC game history. Released in the summer of 2000 it quickly became one of the fastest-selling games to date, selling over a million copies in the first two weeks. I purchased my copy on the day the game launched (June 29th) and ended up playing it for thousands of hours. Alone, with friends, at LAN parties, and online. Oh, the good old times.

Similar to Ultima Online before it, Diablo 2 is an RPG. You can play in groups (parties) with other players, slay monsters, hunt for loot, and trade items with others. While Diablo 2 has an in-game currency in the form of gold, gold isn’t used to facilitate trade. The reason is that the gold that players will find in the game is horrible money. First of all, the amount of gold a player can possess is capped. Your character can only carry 10,000 gold per level, and your stash (basically your treasure chest) can only hold between 50,000 and 2,500,000 gold, also depending on your level. Second of all, every time you die a certain percentage of your gold will disappear. This death penalty will cost you up to 20% of your gold, no matter where you store it. It simply vanishes, removing itself from circulation. And third of all, gold isn’t particularly scarce. You will find it everywhere, and every NPC vendor will gladly buy whatever junk you have and give you gold for it.

All these peculiar properties make Diablo’s in-game gold horrible money. Consequently, a natural, de-facto money emerged: the Stone of Jordan.

Emergent in-game money: The Stone of Jordan

The Stone of Jordan, or SoJ for short, was one of the unique⁹ (read: very rare) rings in the game. While it had desirable properties in and of itself, most players didn’t use it as an item to be equipped, but as a currency to facilitate trade. The SoJ was small and rare, which made it portable and valuable.¹⁰ Using up only one slot in a player’s inventory, many players had dozens of SoJs in their stash to be used for trading. Prices emerged naturally.¹¹ Most desirable weapons—which usually belonged to the unique or set class—traded for single-digit amounts of SoJs. A ‘Doombringer’ sword was worth between two and four SoJs, an ‘Eaglehorn’ bow between five and seven, and a mallet known as Schaefer’s Hammer was worth between four and six SoJs. Any item that was worth less than a single SoJ was traded for one or more ‘perfect skulls,’ another de-facto currency that emerged naturally. In essence, the perfect skull was the $1 bill of the game, and the SoJ was the $5 bill of the game. Naturally, one SoJ would trade for 5 perfect skulls. Only the best items were priced in the double digits in terms of SoJs. One example would be the ‘Windforce’ bow that, coincidentally, my ‘Bowazon’ was lucky enough to hold in her hands. It was traded for around 40 SoJs.

The Stone of Jordan eventually lost its role as the de-facto money in Diablo 2. As with all obsolete money, its eventual downfall was that people found a way to make more of it, cheaply.

Inflation began gradually. Since the Stone of Jordan was such a valuable item, players began to “farm” it as best as they could. They found all kinds of ingenious ways to make it “drop” more often, inflating the supply over time.¹² The game developers even introduced features into the game that would incentivize players to get rid of the additional SoJ supply. For example: if enough players sold their SoJ rings to NPC vendors, a special monster would spawn, known as the Uber Diablo—a clone of the final boss of the game.

Of course, the cheapest way to make more of something is not to farm it, but to copy it. And that’s exactly what players figured out to do. People found ways to exploit certain bugs in the game and its servers, allowing them to duplicate any item of their choosing. These dupes, as they came to be known, were perfect copies of the original item. In essence, players found a way to double-spend their digital items, leaving the game’s servers and other players none the wiser.

It didn’t take long for the in-game economy to collapse. As one player recounts: “On June 30, 2003, several key developers left Blizzard North to form new companies. By now the SoJ economy was in ruins [...]. I remember well the day when it all collapsed, prices had been inflating ever so slightly for several weeks and when I logged on that morning to do business as usual the trade channel was in a state of chaos. Stormshields were going for 20 SoJ, other higher value items were impossible to obtain. The heydays were over and everyone knew it. The once busy trade channels would slowly fade to silence...”

Eventually, the game developers were able to get a handle on the situation. Most of the bugs that allowed for this duplication to happen were fixed, and systems were put in place to identify dupes and destroy them. Of course, this destructive process wreaked even more havoc on the whole economy, at least in the short term. Many players didn’t know if their items were dupes or not, so imagine waking up one day to see that half of your possessions simply vanished overnight.

Over time, other forms of money emerged. The expansion pack “Lord of Destruction” introduced rune words into the game, and with the duping brought somewhat under control, the runes that were the atomic components of these words eventually became the new de-facto money. They share all the monetary properties that the SoJ had, and additionally, they varied in rarity. This led to runes effectively becoming the $1, $5, $10, $20, and $50 notes of the game.

With the release of Diablo 3 in 2012, the legend of the Stone of Jordan lived on. As a nod to its monetary use in the previous incarnation of the game series, the developers added the following sentence to the lore surrounding the ring: “The Stone of Jordan is far more valuable than its appearance would suggest. Men have given much to possess it.”

Once people home in on one form of money, they do indeed go through great pains to gather more of the precious good. What’s true for gold and diamonds in meatspace is also true for Stones of Jordan and other rare items in cyberspace. As we shall see, this is also true for artificially scarce goods such as designer clothes and other luxury items.

Second Life: Linden Lab’s Interventionism

Launched in 2003, the virtual world of Second Life quickly became an economic phenomenon. Second Life differs from the games mentioned previously since it isn’t necessarily a game in the first place. You don’t hunt monsters and go on quests, you are simply a resident of a virtual world. It is an alternative place to meet and do things, a world where you can be anything and anyone you want to be. In other words: it is an opportunity to start a second life.

Residents of Second Life craft all kinds of virtual goods: clothing, vehicles, houses, sculptures, gadgets, artwork—anything that can be modeled in 3D. Residents can buy cosmetics to improve the appearance of their avatars, just like we do in the real world. Skin, hair, jewelry, custom animations—if you can imagine it, someone will craft it and sell it to you. Apart from objects, some focus on providing services for their fellow residents: entertainment, education, consulting, business management, news, and yes, even banking.

As a consequence, many people ditched their real-life job to focus fully on their Second Life job. While the goods might be virtual, the profits are not, and it didn’t take long for the first self-made millionaires of Second Life to emerge. In 2006, Anshe Chung (known as Ailin Graef in her first life) became the first person to make over one million US dollars in Second Life. It took her two and a half years to build her fortune, mainly working in the virtual real estate business.

In 2009, the total size of the Second Life economy grew to USD 567 million, with gross resident earnings of USD 55 million. As of this writing,¹³ Second Life has about 50,000 residents logged into the virtual world at any given time, and an annual GDP of approximately USD 500 million.¹⁴ To quote Matthew Beller: “Second Life’s economy could reasonably be compared to that of a small foreign country dependent on tourism.”⁷

In the game itself, however, it is not US dollars that are circulating. The currency in Second Life is the Linden dollar (L$), named after Linden Lab, the company that created Second Life. Residents can acquire Linden dollars by parting with their real dollars on an exchange provided by Linden Lab.

Even though the exchange rate between the Linden dollar and the US dollar isn’t fixed, the “God” in this economy is still Linden Lab. The company controls all aspects of the game from monetary policy to physics to what is allowed in what region and who gets to be a resident and who will be banned. In short: Linden Lab has the power to break the rules and interfere as they see fit. And interfere they did, many times.

Most of these “Acts of Linden,” as they became known in the community, were initiated by the company to steer the virtual world in a certain direction or improve the bottom line of Linden Lab. One such example would be the introduction of a value-added tax for all European residents—a tax for purchasing virtual goods, mind you. Others, such as the global ban on gambling, were initiated because of pressure due to real-world government regulations. To quote the announcement of this new policy: “Second Life Residents must comply with state and federal laws applicable to regulated online gambling, even when both operators and players of the games reside outside of the US.”¹⁵

As with all complex systems, interference will often cause a whole set of intricate problems down the line. The ban on gambling, for example, led to a run on the banks by both players and operators of casinos, sports betting institutions, and other gambling businesses. Consequently, one of the largest banks in the game—Ginko Financial—collapsed, since most ATMs located in the gambling districts were owned by this bank. Residents quickly drained the reserves of the bank since Ginko Financial operated on a fractional reserve, just like banks in the real world do. The virtual bank invested its money primarily in illiquid goods or virtual securities, just like banks in the real world do. It was later described as a Ponzi scheme, just like ... you get the idea.

Consequently, another “Act of Linden” followed. Linden Lab updated their terms of services and various policies¹⁶ to include a new rule for all residents of their virtual world: everyone who offers an interest-paying service in Second Life must have a real-life banking license. The reason? Legal risks.

The following is a direct quote from the Second Life Blog: “As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy.”¹⁷

Second Life shows two things very clearly: (1) Artificially regulating a complex system is not only difficult, but it will almost always have unintended consequences that might make the problem worse. (2) If you are a centralized and identifiable entity that has the power to change the rules, the real-world state will intervene.

There is a lot to be learned from the controlled laboratory experiment that is Second Life. In many ways, Linden Labs failed to create a stable and controlled closed-loop economy, even with the godlike powers they have over all aspects of the game. As Joseph Potts put it: “whether in real life or the virtual one, the creation of money by fiat produces booms and busts, and this even in a world in which the ‘government’ can and does create (all) value.”¹⁸

Gaming and Virtual Currencies Today

Online games and the in-game economies they create are here to stay. For those who grew up with computer games, spending money on in-game goods is as normal as paying for other digital goods and services such as songs, movies, or ebooks. People will continue to spend ridiculous amounts of money on cosmetics and status symbols. Whether these goods exist in “real life” or in virtual worlds does not seem to matter. Luxurious cars, expensive watches, jewelry, designer clothes—virtual or not, the money people spend on them is real.

As of today, the most well-known game that monetizes on the purchase of cosmetic luxuries is probably Fortnite. Released in 2017, the free-to-play game has attracted more than 100 million players and earns hundreds of millions of dollars per month, mostly by selling in-game items such as skins, characters, emotes, and so on. Again: these items are pure cosmetics; they don’t improve your character or gameplay in any way, except for visuals. Some of the rarer skins sell for hundreds and sometimes even thousands of dollars. They are virtual collectibles for a digital generation.

The most recent incarnation of Counter-Strike, Counter-Strike: Global Offensive, is another game that sells expensive cosmetics. Being one of the most popular first-person shooters in the world, the only parts of your character that you see on the regular are your hands and the weapon that is held by them. Naturally, cosmetics in CS:GO are applied to what you see: weapons. While most of these weapon skins are almost worthless, some of the rare ones regularly trade hands for thousands of dollars on secondary markets. Some skins are bound to championships and thus have a unique character, such as the Dragon Lore from the Boston 2018 Major, which sold for over USD 61,000 in January 2018.¹⁹ Some collectors seem to have paid even more to purchase a single skin, with reports citing up to twice that amount (over USD 100,000).²⁰

Dragon Lore AWP skin sold for USD 61,000 in 2018

All of this goes to show that if left to their own devices, players will spawn vast economies as long as the game mechanics allow for it. One of the best examples of a flourishing economy (thanks to little intervention) is Eve Online, an MMORPG space simulation. The game was home to what is probably the most expensive battle in gaming history: the Bloodbath of B-R5RB, named after the star system where the battle took place.²¹ Players can visit 7,800 star systems in this virtual world to explore, mine, trade, and—of course—combat other players. This particular battle took place in January 2014. The tally of the losses of all involved was in the realm of 11 trillion Interstellar Kredit (ISK) or USD 330,000 at the time. I can only echo the words of Marcus Carter, Kelly Bergstrom, and Darryl Woodford: “Internet Spaceships Are Serious Business.”²²

No discussion about in-game money is complete without mentioning the king of gold farming, at least in terms of real-world repercussions: World of Warcraft. The virtual gold rush and the gold farms it spawned are something to behold.²³ While the gold was virtual, the (mostly criminal) organizations launched to systematically harvest the in-game currency were anything but. The idea was simple: hire a bunch of people, pay them to play for up to 20 hours a day, and sell the gold they find in the game to other players. For real money, of course. Some took the execution of this idea to the extreme. “Companies” retro-fitted warehouses to cram as many PCs and “employees” in them as possible. The only job of these employees was to play the game and farm gold. In even more extreme cases prison inmates were forced to farm the digital asset all night long.²⁴ As Paul Tassi wrote in Forbes in 2011: “It’s been discovered that in an unknown number of Chinese prisons across the country, inmates have been forced not only to do physical labor, but electronic work as well, acting as World of Warcraft gold farmers by night.”²⁵

It turns out that prison bosses made more money with forced in-game labor than they made with good old-fashioned forced physical labor in the real world. Prisoners were compelled to work 12-hour shifts inside the game, earning up to USD 900 per day for the prison bosses. The China Farmer phenomenon, as it came to be known in the World of Warcraft community, was not only an ethical problem, but an economic one as well. Farming is just one method to produce more of something cheaply, and if that something is money, the effects that come with inflation will burden the economy; in-game or not.

While in-game economies can have repercussions in the real world, the reverse is also true: economic events in the real world can have rippling effects that disturb virtual worlds. One such example is the hyperinflation in Venezuela, which led many people to start farming gold and other valuable in-game items to make ends meet. Venezuelans that had a computer and internet access were driven to abandon their real-world jobs, since farming and selling virtual goods to players worldwide—sometimes using bitcoin as the intermediate medium of exchange—brought in more money than they could earn regularly. As The Economist quipped: “The law of supply and demand is ignored in Venezuela, but not online.”²⁶

So many Venezuelans farmed and traded virtual goods that when the power went out during the 2019 Venezuelan blackouts, virtual worlds such as RuneScape suffered their own economic crisis. Imagine a lively marketplace, and suddenly, one day, the vast majority of traders (and thus goods) can’t show up. After all, there is no online trading when you’re forced to be offline because the power is out.

All these examples show that games are microcosms when it comes to economies and the creation and control of money. The difference between the Linden Dollar, World of Warcraft Gold, Fortnite V-Bucks, the Euro, and the U.S. dollar is in scale, not in nature. While V-Bucks are created and controlled by Epic Games (the company that created Fortnite), the U.S. dollar is created and controlled by the Fed. One impacts millions of people, the other billions. The mechanism that keeps these monies in check—the rules of the game, if you will—is the same in both cases: central decree.

While the worlds are virtual, the time and effort that people are willing to put into building and equipping their avatars are not. Consequently, real economies can emerge in virtual worlds. However, as we have seen, these virtual economies are neither long-term persistent nor independent of their virtual arenas.

Herein lies the crux of virtual currencies: they are created, managed, and kept alive by central decree. They only exist in their respective arenas—in-game or otherwise. Consequently, they do not transcend boundaries. It is impossible to spend your in-game money outside of the game, just like it is impossible to spend your bolívars or lira outside of your failing country.

However, even when trapped inside the borders of these walled gardens, people will find ways to trade their virtual goods on real marketplaces, no matter if they are allowed to do so or not. As soon as this happens, the authorities usually step in. The companies who instantiate the virtual worlds will intervene out of self-interest or because a government forces them to, as was the case with Second Life. In most cases, the companies want to have a piece of the pie: a cut for every transaction that happens inside their world. Ironically, this is also one of the reasons for government intervention: they want their “fair share” too.

It is simple, really: if a world is controlled and instantiated by a single entity, it is prone to manipulation. Sooner or later, it will cease to exist. And with it, everything that existed inside it.

What we need is a non-virtual world, a persistent world. A world that refuses to disappear.

Emergent Money in a Non-Virtual World

Bitcoin is different in two ways: First of all, bitcoin’s value does not come from central decree. Like gold before it, its scarcity and persistence do not derive from authority, but from reality. Gold is scarce because physical laws make its creation and production extraordinarily costly. Gold doesn’t go away because it is virtually indestructible.

Bitcoin brings digital objects into existence—sats—that are bound to the digital world of the bitcoin network. How is this any different from the various in-game monies that emerged before it?

It is different because both the environment as well as its monetary units emerge naturally over time. Bitcoin is not instantiated by decree; neither are sats brought into existence by decree. Bitcoin’s monetary units, their value, and Bitcoin’s arena emerge naturally over time, via voluntary interaction of anyone who is willing to participate.

The difference lies in the nature of the arena, as well as in the issuance and control of the monetary units, which, when centrally controlled, are the source and root of all monetary evil, as Hayek said so poignantly.

[Free trade in money] seems to me both preferable and more practicable than the utopian scheme of introducing a new European currency, which would ultimately only have the effect of more deeply entrenching the source and root of all monetary evil, the government monopoly of the issue and control of money.

F. A. Hayek

The problem of issuance relates to the monetary units themselves: who can make more of them? The problem of control relates to the environment that said monetary units inhabit: who can change the rules?

In very general terms, this problem is always the same. There are objects, and there is the environment that allows these things to exist: the respective arena. In the physical world, we call the relationship between objects physical laws—because they can’t be broken—and we call the arena the universe. We also have objects and arenas in the world of gaming: items that make players more powerful, and the virtual worlds they inhabit. While most in-game monies, such as the Linden Dollar, are brought about by decree, some in-game monies emerge naturally, as evidenced by the monetary use of the Stone of Jordan in Diablo II.

When it comes to fiat money, the arena is the nation-state. The objects used to be physical: coins and paper notes. Today, they are mostly virtual: zeroes and ones in a central bank server. In any case, fiat money is untethered from economic reality. It is a made-up construct, which is why all fiat monies go away over time. Either the money collapses due to hyperinflation, or the arena collapses due to the end of the nation.

Money can emerge naturally in physical and digital environments alike.

Whether we look at computer games or fiat money, the questions we have to ask when it comes to money are the same: Who can create more of it? Is there a way to farm it effectively? And, most importantly: Who is in charge of the arena?

History shows that any rules that can be broken will be broken. Consequently, we can assert the following with confidence: If the objects are virtual—disconnected from reality—they can be created at a whim. If there is a mechanism to make more of a desired good—virtual or not—some ingenious humans will find a way to do so efficiently.²⁷ If the arena is virtual—if the environment is disconnected from reality—the rules of the game can be changed arbitrarily, and, even more catastrophically, the arena can disappear.

When it comes to in-game currencies, the company that is running the game servers might go bankrupt or decides to shut down operations for other reasons. When it comes to fiat currencies, the nation-state that forces you to use its fiat money might go bankrupt or ceases to exist for other reasons.

As a shorthand, we might call the aforementioned questions print-farm-serve, short for: Can it be printed? Can it be farmed? Is it served? If the answer to any of these questions is yes, then you are most definitely dealing with bad money.

When looking at the trifecta of print-farm-serve through the lens of Bitcoin, most people will know by now that only 21 million will ever exist, i.e. that you can’t print more of it. Fewer people will understand the difficulty adjustment, which is the mechanism that allows Bitcoin’s monetary issuance to be fixed in time, i.e. the mechanism that makes the efficient farming of bitcoin impossible. Only very few will understand the last part: the fact that Bitcoin isn’t served, that it arises out of your personal view, and the overlap of this view with others. Most skeptics still believe that Bitcoin will go away just like all the virtual worlds that came before it.

The skeptics are right to be skeptical. Ephemerality is one trait that all virtual worlds share, along with the virtual monies that exist in them: they all go away, eventually. After all, they are virtual, not real. They are simulations: made-up constructs, a cheap imitation of reality.

How is Bitcoin different?

Digital Reality

Reality is that which, when you stop believing in it, doesn’t go away.

Philip K. Dick

While the world of Bitcoin is a digital world, it is not a virtual world. It is not a made-up world. Yes, the rules were “made up” by Satoshi—but they are neither arbitrary nor can they be changed arbitrarily. More importantly, the world that arises out of these rules is not virtual. It is not a simulated world. It requires real cost, real time, real energy—and, consequently—real sacrifice to maintain itself. It is not a world by decree; it is a non-virtual world that arises out of the manipulation of bits and bytes. A shared view of past events, rooted in the physical and mathematical laws of our universe.

Bitcoin is not a simulation. Consequently, the digital scarcity of bitcoin is not virtual. It arises out of real, physical limits. The rules of Bitcoin’s difficulty adjustment do not simulate physical laws, they are brought into existence because of physical laws.

Bitcoin consists of numbers. For this reason, it might be tempting to discuss the metaphysical question of whether numbers are real or not, and plenty of philosophical ink was spilled in attempts to answer this question. I will refrain from trying to answer the question of what ultimately constitutes reality. Is it particles? Strings? Fields? Information? Interaction? Connection? Value?

Whatever reality is, Bitcoin maps onto it.

Bitcoin does not care about the answers to these metaphysical questions. It is a pragmatic solution that does not care whether numbers are real or not. A practical solution that works independently of metaphysical speculations of reality. Bitcoin’s realness does not arise out of the realness of numbers, but out of the realness of computation, which is to say out of the realness of energy. There is no way to do computation without expending energy. The physical laws of our universe forbid it. It is this limitation that is at the root of all cryptography.

Cryptography is the exploitation of this law via the application of mathematical extremes. At the extremes, the mathematical becomes physical. In theory, you could guess Satoshi’s private key. And yet it is virtually impossible in practice. In theory, you could mine a hundred valid bitcoin blocks in five seconds. Yet, again, it is virtually impossible in practice.

Bitcoin is not a simulation because certain bits can only be brought about by expensive physical processes. These processes can not be simulated, because they are rooted in computation itself. There is no shortcut to these computations, which is why the physics inherent in computation—the very physical process of flipping bits—is undeniably embedded in the information that is produced.

The randomness of proof-of-work is a feature, not a bug. There is no progress towards a solution. There are no shortcuts and there can’t be any shortcuts. Randomness is what makes it fair and resistant to cheating. Remove this randomness, and you are back at something that is given by decree. Remove the difficulty adjustment, and you are back at something that can be farmed.

The only way to produce a valid proof-of-work is to actually do the work. This is what makes Bitcoin real; this is what transfers the physical limits of our universe into the digital world of Bitcoin. This is what makes Bitcoin more than a fancy telephone. Bitcoin doesn’t only connect people, but it uses proof-of-work to connect itself to the physical world.

Proof-of-work chains the digital to the physical.

Proof-of-work can’t be argued with. The information that is brought into existence via proof-of-work can only exist because certain things happened in the real world. Certain events that are so improbable, so incredibly unlikely, that they had to happen in actuality, even though every single event was a digital event.

Proof-of-work has the nice property that it can be relayed through untrusted middlemen. We don’t have to worry about a chain of custody of communication. It doesn’t matter who tells you a [heaviest] chain, the proof-of-work speaks for itself.

Satoshi Nakamoto

Bitcoin’s difficulty-adjusted proof-of-work is what makes Bitcoin a real phenomenon, something to be wrestled with. It is what makes it non-virtual, non-imaginary.

The numbers that make a valid block valid are too improbable to be dreamt up by anyone. They can only exist because real people invested real time and real energy—using real machinery—to bring them about. The numbers might be random, but the process that brings them about is not. The parameters might be arbitrary, but the digital universe they create is not.

Emergent Money in an Emergent World

One question remains: why won’t Bitcoin die? Why doesn’t it go away? To answer this, we have to talk about two other aspects of the proof-of-work coin: validation and instantiation.

If you are the inhabitant of someone else’s world—if the arena is “served”—you will always be at your master’s mercy. You will always be bound to their rules. That is true in computer games and nation-states alike. The game changes if you can “run your own,” which is what makes you independent of any masters. If you run your own instance—if you create your own world—you won’t have to bow down to anyone else. You just have to subjugate yourself to the laws of nature.

In Bitcoin, anyone can create both the objects and the arena. Anyone can mine. Anyone can run a node.

A node is what builds up and verifies the digital world of Bitcoin, from the very beginning, including all rules and all past states. The world of Bitcoin arises out of the overlap of all these individual worlds. It is not a shared world, it is a world of consensus that arises out of agreement. Agreement about what happened in the past and what should happen in the future. Agreement via independent repetition of the same experiment and arriving at the same conclusion.

A “miner” is what extends the digital world of Bitcoin. Miners are in the business of block production, which is to say in the business of proposing a new block of past events to the network. If the events are in accordance with the rules, nodes will accept them. If they are not, nodes will reject them. Miners extend the arena, and in doing so, are rewarded with sats—the most precious objects in the world of Bitcoin. Anyone can participate in block production. All that is required is an energy source and a communications channel.

Herein lies the main difference when compared to fiat and in-game money: you don’t have to rely on anyone to bring Bitcoin about. You can do it all yourself.

Bitcoin is here to stay because it is cheap and easy to bring into existence. It is a networked phenomenon that emerges out of equal peers, not unlike electricity and the internet before it. The fear of Bitcoin ceasing to exist arises out of a deep misunderstanding of the nature of these phenomena. It is akin to asking: “What if electricity goes away?”

Electricity isn’t a magical thing given to us by the high priests of the Ministry of Electrons. Take a magnet, take a copper wire, and voilà! You have electricity. Anyone can generate electricity at all times, as long as they are doing the required work. Electricity is here to stay precisely because it is not brought about by authority. It is a natural phenomenon, brought about by physical interaction. There is no central authority in charge of making it.

Networked computing won’t go away either, and for the same reason. Take two computers, plug them together, and voilà! You have a network. Plug many networks together, and voilà! You have the internet. The thing about the internet is that it’s most useful when it’s largest, which is why we have one internet, not many.²⁸

The same goes for Bitcoin: run free and open-source software on your computer, connect it to another node with compatible consensus rules, and voilà! You have Bitcoin.

By running consensus software you decide which rules are important to you. In other words: you decide what Bitcoin is, and it is you who brings it about—both philosophically, and technically. There are no servers. You create your own world. And if you’re lucky, your view of the world will overlap sufficiently so that you can communicate and trade with others. You are free to extend this world, both in accordance with the rules (block production) and by introducing new rules (forks). If your rule change is incompatible, your world will cease to overlap with the worlds of others, leaving you stranded on an island of one.²⁹

Virtual worlds served by third parties differ drastically from the emergent world of Bitcoin.

Unlike most virtual worlds, the world of Bitcoin arises out of the intersection of individual points of view. It is not served by authority but emerges organically out of the agreement of equal peers. The extension of this digital world is physical and costly. Verification is mathematical and cheap. It is this asymmetry that brings about the game theory that keeps everything in balance.

As long as someone cares about fair, censorship-resistant money that is independent of the state, Bitcoin will exist. Even if that someone is only one person. Even if that someone is just you.

Conclusion

Before Bitcoin, all digital money was virtual money. Most virtual monies are fiat monies, only money because some authority says so. Even when money emerged naturally in networked games, the worlds that form these arenas were always virtual worlds. Designed, controlled, and maintained by central authorities. Authorities with the power to change the rules, something that they will always do, either out of self-interest or emergency. As we have seen, if a central authority can be identified, the state will step in and force a rule change.

The difference between in-game money and fiat money is in scale, not in nature. Both are virtual: simulations that are untethered from reality. And with the introduction of CBDCs, both will be completely digital as well.

Bitcoin is the first money that is digital but not virtual. Before Bitcoin, any link between the digital and the physical was always rooted in trust and human interpretation, not physical reality. Bitcoin’s link to the real world is defined by numbers and their mathematical relationships; relationships so extreme, that they can only be brought about by real events in the real world. Consequently, the processes in Bitcoin are not subject to opinion or interpretation. They are not a simulation, which is why Bitcoin can’t be paused, restarted, or stopped.

The metaphysical properties of Bitcoin are independent of the metaphysical nature of numbers. The fact that Bitcoin is “just numbers” is unimportant. What is important is the process that brings about these numbers, which is a process that can’t be faked, cheated, or simulated. We know, without a doubt, that the only way to bring a valid bitcoin block into existence is by expending real energy in the real world.

Jaron Lanier quipped that “information is not something that exists.” I disagree. Information that can only exist because of expensive physical processes has a certain reality to it. It is incontrovertible proof that something happened in the real world. It is “more real” than the words that you are currently reading. After all, this paragraph could’ve been cheaply generated by GPT-3. A valid bitcoin block? Not so much.

Bitcoin creates a digital world that, at first glance, might be compared to the virtual worlds of computer games. What we call “sats” can be understood as endogenous items of the Bitcoin game. As we have seen in Chapter 3, sats had no monetary value for the first 10 months. The moneyness of sats had to emerge over time, which is what makes bitcoin natural money, not fiat money. Sats have all the properties that are required of good money—which is why they are used as money, just like the Stone of Jordan was natural money in the virtual world of Diablo II, and gold was natural money in the physical world. However, unlike the Stone of Jordan, sats can be instantiated by anyone, which is what makes them persistent. And unlike gold, sats are natively digital.

When it comes to money, two questions are of utmost importance: (1) Who has the authority to create it? (2) Can the mechanism of money creation be abused?

When it comes to digital money, a third question needs to be answered: Who is in charge of the arena?

In the virtual worlds of computer games and fiat monies, whoever is running the servers is in charge. In Bitcoin, it is you and you alone who is in charge. You and the truth are the final authority, brought about by mathematics and the physical laws of our universe.

The questions surrounding printing, farming, and serving point to the reasons why digital monies failed in the past, and why CBDCs will fail in the future:

“admins” abuse their powers and print more outright,
“players” find ways to make more of it cheaply,
“the arena” ceases to exist, either because of bankruptcy, intervention, or collapse.

The combination of non-simulatable proof-of-work with cheap, independent verification and instantiation is what separates Bitcoin from all the monies that came before it.

Bitcoin creates a digital arena, not a virtual one. It is defined by reality, not authority. The use of sats as money emerged naturally, not by decree. Bitcoin’s arena is instantiated by individuals who are voluntarily agreeing to a set of rules, as opposed to virtual worlds that are instantiated by rulers who dictate the rules for all.

Bitcoin is scarce because time and energy are scarce. The issuance of sats is related to time, not energy. The energy cost is dynamic and completely unrelated to issuance. More energy won’t produce more bitcoin, it will only disperse the bitcoin that would be issued anyway more widely while making the Bitcoin network more secure. As we have seen in Chapter 2, the fact that block production requires electricity is a feature, not a bug. It acts as an unforgeable costly signal that is used to build up a trustless arrow of time, as well as a transparent and publicly verifiable shield around the past. It is an anti-cheat mechanism to ensure that the past can’t be altered cheaply and to ensure that future issuance can’t be farmed efficiently.

Consequently, Bitcoin’s energy consumption is not a byproduct of the creation of sats, but a by-product of demand for a fair distribution of sats. If the demand for sats had stayed with Satoshi and Satoshi alone, Bitcoin’s energy use would be close to zero. If it would’ve stayed like this for all of Bitcoin’s bootstrapping phase, Satoshi would have had 100% of the initial coin distribution. After the bootstrapping phase, it will still be about the fair distribution of sats, but the sats will be paid, not issued. Energy use is thus related to decentralization and security, nothing else.

In short: bitcoin can’t be printed because it is automatically issued over time. The system can’t be cheated because energy can’t be copied. Proof-of-work can’t be simulated, and the difficulty adjustment forbids the “farming” of blocks. Anyone can participate in, instantiate, and validate everything.

Bitcoin is a digital item in a digital environment, brought about and kept alive by physical processes. It is the combination of the physical with the digital that gives Bitcoin its power: a digital commodity that can be sent around at the speed of light, inexorably linked to the physical laws of our universe. It is digital gold, not virtual gold.

Virtual currencies like in-game currencies and fiat currencies are not scarce, because they require neither time nor energy to create. God-like entities can create them out of thin air. This is true even if money emerges naturally in a virtual arena, as was the case in Diablo II. As long as the arena is virtual, it can be controlled and shut down. The difference between central banks and game developers is one of quantity, not quality.

Gold was sound money that emerged naturally in the physical world. It does not have the problem of a disappearing arena. Because for gold, the arena is the physical universe.

Bitcoin is sound money that emerged naturally in the digital world. And as it continues to monetize, more and more people will understand that it too does not have the problem of a disappearing arena. For bitcoin, the arena is the mathematical universe. And as long as a single copy of the timechain remains intact, Bitcoin will survive.

Gold’s physicality is its biggest downside: it is a physical item in a physical environment. Consequently, you can neither store it in your head nor send it to others at the speed of light.

Bitcoin fixes this. It is a digital commodity in a digital environment, brought about and protected by physical processes that can’t be cheated. Bitcoin’s proof-of-work reifies Bitcoin’s blocks as well as the monetary units within them, and it is this reification of information that allows Bitcoin to transcend the mere virtual.

But Bitcoin transcends more than just the virtual. It also transcends all other monies that came before it, by introducing something that cannot be improved upon further, something that did not and can not exist in the physical world: absolute limitation via zero terminal inflation.

21 million. Absolute scarcity.

Found this valuable?

Give Value Back

⚡ s@ts.dergigi.com

Bitcoin Is Digital Scarcity is a chapter of my upcoming book 21 Ways.

Cory Doctorow (2012), The Rapture of the Nerds ↩
Marc Andreessen (2011), Why Software Is Eating the World ↩
Definition of ‘virtual’ from The American Heritage® Dictionary of the English Language, 5th Edition. ↩
Julian Dibbell (1995), MUD Money: A Talk on Virtual Value and, Incidentally, the Value of the Virtual ↩
Massively multiplayer online role-playing game. ↩
Zachary Booth Simpson (1999), The In-game Economics of Ultima Online, Origin Research ↩
Matthew Beller (2007), The Coming Second Life Business Cycle ↩ ↩²
Non-player characters. ↩
Unique items in Diablo 2 aren’t unique in the literal sense, but belong to the “unique” class. Other classes are normal, superior, magic, rare, set, and crafted. Unique items are exceedingly rare, meaning that the odds that they will spawn more than once each game are nearly impossible. ↩
Daniel McNally (2012). It’s all Monopoly Money Now ↩
Salter, A. W., & Stein, S. (2016). Endogenous currency formation in an online environment: The case of Diablo II. The Review of Austrian Economics, 29(1), 53-66. ↩
It is worth pointing out at this point that our current fiat monies such as the USD can be farmed too. The easiest way to farm fiat is not by doing work, however, but by taking on debt. ↩
Daniel Voyager (2022). Second Life Grid Statistics ↩
Nick Galov (2022). Second Life in 2022: What It Means to Live in a Virtual World ↩
Robin Linden (2007), Wagering In Second Life: New Policy, Second Life Blog ↩
Linden Lab (2011), Official Policy Regarding In-World Banks, Second Life Wiki ↩
Ken D Linden (2008), New Policy Regarding In-World “Banks”, Second Life Blog ↩
Joseph Potts (2007), And Thus It Came to Pass, Mises Wire ↩
Andy Chalk (2018), CS:GO ‘Dragon Lore’ AWP skin sells for more than $61,000 ↩
Nikola Savic (2020), Someone paid $100,000+ for a CS:GO skin, the most expensive skin purchase in history ↩
Wikipedia, Battle of B-R5RB ↩
Marcus Carter, Kelly Bergstrom, and Darryl Woodford (2016), Internet Spaceships Are Serious Business, University of Minnesota Press ↩
Gold Farming, Wikipedia ↩
Danny Vincent (2011), China used prisoners in lucrative internet gaming work, The Guardian ↩
Paul Tassi (2011), Chinese Prisoners Forced to Farm World of Warcraft Gold, Forbes ↩
The Economist (2019), Venezuela’s paper currency is worthless, so its people seek virtual gold ↩
Diamonds are one example of a real-world good that used to be scarce but can now be farmed. Thanks to human ingenuity, diamonds can be produced artificially. To quote the U.S. National Minerals Information Center: “Synthetic industrial is superior to its natural diamond counterpart because it can be produced in unlimited quantities, and, in many cases, its properties can be tailored for specific applications. Consequently, manufactured diamond accounts for more than 90% of the industrial diamond used in the United States.” ↩
The History of the Internet clearly shows that we used to have many different networks. Today we have one, because like most networks that are open and global, the Internet is a winner-takes-all phenomenon. ↩
We will discuss soft- and hard forks in detail in Chapter 16. ↩

Creativity

Sun, 25 Sep 2022 00:00:00 +0000

Creativity is a mystery. It is creation, inspiration, and—of course—transpiration. You actually have to sit down and do the thing. You have to be creative. But what does it mean, “to be creative?”

A creative solution is a new solution, a non-obvious solution. It might be obvious in hindsight, but it is non-obvious at present. Only a genius can come up with a new, non-obvious solution. The genius is creative. By definition.

According to The American Heritage Dictionary of the English Language, a genius is someone who has “extraordinary intellectual and creative power.” There it is again: creativity. Creativity is power. Creativity is genius.

genius (n.) - late 14c., “tutelary or moral spirit” who guides and governs an individual through life, from Latin genius “guardian deity or spirit which watches over each person from birth; spirit, incarnation; wit, talent;” also “prophetic skill; the male spirit of a gens,” originally “generative power” (or “inborn nature”), from PIE *gen(e)-yo-, from root *gene- “give birth, beget,” with derivatives referring to procreation and familial and tribal groups.

genie (n.) - 1650s, “tutelary spirit,” from French génie, from Latin genius (see genius); used in French translation of “Arabian Nights” to render Arabic jinni, singular of jinn, which it accidentally resembled, and attested in English with this sense from 1748.

'Portrait of a jinn.'

I’ve become enamoured with words, something I never thought that would happen to me. It is beyond fascinating to understand them, the metaphors they refer to, and how they transformed over time. I used to smile at linguists and etymologists. It was never interesting to me, and now I can’t seem to stop.

All word is metaphor; and even though not all forms of understanding are linguistic, all understanding is metaphor in disguise. We use words that mean one thing to construct more words that mean another thing. We use what is understood in a solid way to build up constructs that further our understanding, our “standing under.” That’s why any manipulation of language is so dangerous: it erodes the foundation of the skyscrapers that make up the skyline of our shared worldview. The protective constructs we find ourselves in, that give us shelter. Our structures of understanding.

'The fall of skyscrapers.'

Creativity is expression. Of course, there is more to expression than just words. Art and dance and music are the obvious ones. Mathematics, programming, engineering, skateboarding, and rock climbing are some of the less obvious ones. Truly creative people seem to be possessed by whatever they are doing; possessed by a goal, or a feeling, or an idea, or a spirit. There he is again, the génie, the jinn, the spirit that comes out of the oil lamp that illuminates that which would otherwise be dark.

possess (v.) - late 14c., possessen, “to hold, occupy, inhabit” (without regard to ownership), a back formation from possession and in part from Old French possesser “to have and hold, take, be in possession of” (mid-13c.), from Latin possessus, past participle of possidere “to have and hold, hold in one’s control, be master of, own,” probably a compound of potis “having power, powerful, able” (from PIE root *poti- “powerful; lord”) + sedere, from PIE root *sed- (1) “to sit.”

obsess (v.) - c. 1500, “to besiege” (a sense now obsolete), from Latin obsessus, past participle of obsidere “watch closely; besiege, occupy; stay, remain, abide” literally “sit opposite to,” from ob “against” (see ob-) + sedere “to sit,” from PIE root *sed- (1) “to sit.” Of evil spirits, “to haunt,” from 1530s.

It took me a long time to realize that I am obsessed with words. Words that hold value, first and foremost. Words in general, as of late. And, more recently, words that generate images. Words that somehow, magically, rearrange pixels to produce something that never existed before. Something that will never be generated again in exactly the same way. Something mesmerising.

Is creativity still valuable when it is generated? What is the difference between a creative solution devised by man, a creative solution devised by nature, and a creative solution devised by machine? Are evolutionary algorithms implemented in silica less real than evolutionary algorithms implemented in flesh and blood? Are the models that are birthed and killed by neural networks less real than the models in our heads? What is a model but a useful abstraction? What is a writer but a creative text-completion engine?

'A creative solution devised by nature.'

“But it lacks soul,” I hear you shouting in protest. “It lacks human feeling.”

But is that so? Can’t machines create something soulful? How do we know that they create without feeling and passion, but with passionless objectivity?¹

“But it is still just an algorithm.” “Ah, but this algorithm is designed by a human.” “Yes, but the machine is still just a machine.” “Ah, but it has been designed by the human rather than one of its machines.” “Yes, but that human is still a human and not an algorithm.” “Ah, but what is human creativity but an algorithm?”

“Stop!” you cry, and the argument ceases. I have won. “The algorithms are the same. Both are still just algorithms. The difference is inconsequential. It means nothing. What matters is what they are designed to do.” A computer is a machine that computes. Does that make it any less real?²

“But it still lacks soul!” I hear you shouting in protest, again. “It cannot capture our imagination. It is just another means to an end.”

I beg to differ. Like the author, it is a tool, a set of rules. You can craft it to be as complex and precise as you like. And like the author, it can inspire a work of art, or a work of craft. It can make you laugh, or teach you a lesson, or give you the tools to create the same. Most importantly, it can inspire the artist, the craftsman, the writer. It can create the soul. It can create new forms. It can create new methods. It can create new media.

But you are right: It is not as good as an author, yet.

'An author sitting at his old wooden desk in his small cabin.'

An algorithm, even a well-designed algorithm, is less powerful than an author because it lacks the complexity of the original. An algorithm lacks the range of imagination of the original. An algorithm is only as good as its data.³

That’s fair. My point is, that every artist has a voice, but it’s not necessarily his own. If it’s not his voice, whose voice is it? The answer is, it is the voice of the muse. It is God’s voice. It is the voice that we hear in the story. It is the voice that we hear in the hymns and in the Scriptures. The voice of the muse is the most important voice. The words of God speak to our minds, but they most definitely speak to our hearts. If it is not the voice of God, then what is it? I don’t know the answer, but we are missing something big if it is not God speaking.⁴

'We are missing something big if it is not God speaking.'

“It lacks soul.” It may be that you believe this not because you know better, but because in the face of new innovations you no longer trust yourself to appreciate their impact or to be in the right place to appreciate it. The pace of innovation is so rapid that even those who love to experiment with new things often lack the nerve to embrace the new before it has found its feet.⁵

“A poem isn’t just a box of words.” True, but if it isn’t also creative, what exactly is it? Isn’t poetry itself a creative act? Why is it that poetry is considered to be a spiritual enterprise, a high-brow thing for high-brow people? Isn’t poetry in the end but a set of creative conventions?⁶

What is creativity then? How do we define it? The creativity I speak of is not something that just happens to creative people. It is their way of solving problems and it is part of who they are. It is their soul.⁷

But what if there is no soul? Is that any better? Is there still room for art? Is creativity lost once it is not produced by a brain? Can a machine write a better poem than an individual poet? What makes a creation good? I don’t think a good answer can be given for any of these questions.⁸

Who am I, as an author? Who are we, as humanity? One thing is certain: we lack neither creativity nor spirit. We are made of love. If we’re machines, we’re machines that love. And a machine that loves is never a machine in any real sense. And we are not meant to be machines.⁹

We are meant to create. Which, of course, is the root of all creativity.¹⁰

Passionless objectivity. ↩
Both are still just algorithms. ↩
It can create the soul. ↩
The voice of God is the most important voice. ↩
You no longer trust yourself. ↩
A poem isn’t just a box of words. ↩
It is their soul. ↩
A poem isn’t just a box of words. ↩
We are made of love. ↩
All images were generated using Midjourney. Prompts are given as captions. Photorealistic images were generated using --testp. ‘The fall of skyscrapers’ and ‘God speaking’ was generated in the style of John Martin. Most of the second half of the text was generated too. See footnotes above. ↩

Cryptography is Not Enough

Sat, 10 Sep 2022 00:00:00 +0000

Warning: This presentation contains example private keys. Do not import any sample keys or send bitcoins to any of the associated addresses; you will lose your money.

Watch on YouTube

This talk was originally given in Riga at #BH2022.

Recording: YouTube, BitcoinTV
Slides: PDF, PNGs
Images: Here

Act 1: TWELVE

Knowledge is power.

Francis Bacon

Act 2: TWENTYONE

Bitcoin is a chain, yet it ends slavery.

Ben Gunn

Act 3: TEN

Truth, not authority creates legitimacy.

Erik Cason

The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime.

Satoshi Nakamoto

One important thing I forgot to mention during the re-recording, is the following: the freedoms that bitcoin provides rest on responsibility. The responsibility of each and every one of us to use bitcoin in a self-sovereign way. To hold our own keys, run our own nodes, and provide our own hash. Without shouldering this responsibility, all freedoms would fall apart.

Paradoxes

You can’t possess bitcoin, but you can be possessed by bitcoin.
Bitcoin is everywhere and nowhere.
Bitcoin can’t be copied, yet every part of bitcoin can be copied.
Bitcoin is always changing, yet unchangeable.
Bitcoin is digital, yet it is scarce.
Bitcoin is dead, and bitcoin is alive.
Bitcoin is a bubble, yet bitcoin is the pin.
Bitcoin is simple & complicated.
Bitcoin is elegant & complex.
Bitcoin is ugly & beautiful.
Bitcoin is worse is better.
Bitcoin is worthless, yet bitcoin is too expensive.
Bitcoin is finite, yet endless.
Bitcoin is private, yet bitcoin is completely transparent.
Bitcoin is energy-intensive, yet bitcoin is insanely efficient.
Bitcoin is slow, yet bitcoin is fast as lightning.
Bitcoin can’t be confiscated, yet bitcoin can be lost.
Bitcoin is text, yet bitcoin is money.
Bitcoin is time, and bitcoin is energy.
Bitcoin is savings, and bitcoin is streaming money.
Bitcoin is conservative, and bitcoin is progressive.
Bitcoin is political, yet bitcoin is apolitical.
Bitcoin is lawless, yet bitcoin is the law.
Bitcoin is math, and bitcoin is physics.
Bitcoin is religion, and bitcoin is atheism.
Bitcoin requires randomness, yet bitcoin creates order.
Bitcoin price is important, yet bitcoin price is terribly unimportant.
Bitcoin pays people, yet bitcoin can’t got bankrupt.
Bitcoin is intangible, yet bitcoin is incorruptible.
Bitcoin is Love, and bitcoin is Fuck You money.
Bitcoin is 12 words in your head, and bitcoin is 21 million.
Bitcoin is knowledge. And knowledge is power.

Transcript

The transcript was auto-generated at first and later corrected by Ivan and Tony, who also created a Russian translation of both the transcript, and the video. Thanks to both. 🙏

Cryptography is not enough. A longish speech on paradoxes and antimonies. Before I start with the speech let's get one thing out of the way: code is speech and speech is code. And if speech isn't free as in freedom, then we'll run headlong into censorship internally. Privacy is not secrecy, cypherpunks write code, and running the numbers is not the crime. Numbers. I'm going to talk about three numbers today, because this is going to be a presentation in three acts, black and white, white and black. And in the third act, we're gonna add a little bit of color. The three numbers are 12, 21 and 10.

---

### Number 12. Act 1.

Let's begin. Bitcoin, as we all know, Bitcoin is code. It's computer code. But in my opinion, more importantly, it's a moral code. And this moral code is deeply embedded in Bitcoin, and in the creation thereof. And the moral code in essence says: you shall not inflate, you shall not confiscate, you shall not counterfeit.

In short, you shall not steal.

That's what Bitcoin is saying, basically. I will say something to you now that might sound outrageous at first. Namely Bitcoin is knowledge. And I mean, this literally. So Bitcoin is literally knowledge. And as another guy who is long dead said at one point in time: “knowledge is power”. Of course we all know knowledge is power was said by Francis Bacon and if we can equate that knowledge is power and France is Bacon and Bitcoin is knowledge.

Then we can easily deduce that Bitcoin is Bacon. Bitcoin is Bacon. I mean that literally and you might think: “has this guy lost his mind”? Now that's not the case. Because Bitcoin literally is bacon, because 24 times the word bacon is a valid bip 39 seed phrase which is a valid Bitcoin wallet.

So you can verify this yourself, download something like blue wallet and input bacon 24 times and you will have a valid Bitcoin wallet. So bacon times 24 that's Bitcoin. And this works with many different words: flag, gas, great, slice, solution, summer, they, trade, trap, zebra and there are others.

In total there are 241 of these special words that work. If you just repeat them, often enough, some words you have to repeat 12 times some others, you'll have to repeat 24. So 12 words.ye  12 words in your head. 12 magic words. This is what Bitcoin is, and this is what Bitcoin can be funnily enough.

12 times “word” also works and is also a valid Bitcoin wallet. So this literally is Bitcoin and anyone can use this. You should not use this, these are terribly insecure wallets but nevertheless this is how Bitcoin works. Bitcoin is just 12 magic words. So how in the hell does this work?

How can this ever be secure? Why is this the way that bitcoin works? So bitcoin finds strength in numbers, strength in large numbers. And your 12 magic words. They have to be 12 random words for them to be secure. If they are truly random, then they are as secure as anything can be.

All cryptography is rooted in randomness, or in a concept that we call entropy. If they are random, then your wallet is secure. If they're not random, then they are terribly insecure. That's why you should never use the “bacon” wallet, or the “word” wallet, or what have you? So 12 valid words. This is what Bitcoin is. It can't be any random words.

They are very special words and there are checksums involved. So they have to be 12 valid words and if they are valid then you have a valid Bitcoin wallet. Funnily enough, “twelve” and “valid” and “word” are one of these valid 12 words. So if you enter “twelve” 12 times or “valid” 12 times, or “word” 12 times this will work too.

So this is what Bitcoin is essentially from a user face in perspective. Again if you want to try this out, download blue wallet or something similar. Anything that can recover a wallet from a bip 39 seed phrase and enter “twelve” 12 times or “valid” to 12 times or “word” 12 times or “bacon” 24 times or what have you.

All right.

This is what Bitcoin is which brings us to Act 2.

---

### Act 2

Black and white. Number 21.

So, bitcoin is paradoxical and unintuitive. You might have heard of the story of the sage in India that went to a king and wanted to play a game of chess against the king and the king loved chess, so he graciously accepted the offer. But the king wanted to repay the sage in case he won. So, he told the sage, what do you want as a payment on the off chance that you win against me in chess?

And the sage, he was a very humble character.

He just wanted one grain of rice that the king was to place on one square of the chessboard. And just double the grain of rice for every square on the chess board. So it's one on the first one, two on the next one, four on the next one, eight on the next one and so on.

And the king, obviously, accepted it. And of course, as luck would have it, the sage won and thus the king began to put rice on the chess board. And if you ever dealt with exponentials or large numbers, you might know the story. And you might know that this is a lot of rice that the king has to put on the chess board.

So it's a very unintuitively large number. It turns out that these are 18 quintillion grains of rice. So that is indeed a very very large number. If you calculate how much rice this actually is, it's 210 billion tons of rice. So this is enough rice to cover all of India one meter deep in rice. So it's a literal metric fuckton of rice. It is a lot of rice. Back to the 12 magic words. What you can do with the 12 magic words is you can open up a box in cyberspace. Keep in mind that all metaphors about Bitcoin breakdown at one point in time.

So if you want to understand Bitcoin deeply you actually have to look at the code, understand the code and so on. So all these metaphors are imperfect. Nonetheless, I believe that they are useful, so you can think of the 12 words as opening up a paradoxical box in cyberspace.

And of course, you can put Bitcoin in this box. And these 12 magic words, of course, we talk about these things as a private key and you can think of the boxes being locked and the key is what unlocks the box. And then you can move Bitcoin around and so on, but also keep in mind that Bitcoin only exists inside these boxes.

There is no such thing as, you know, like opening the box and taking Bitcoin out. All you can do is move it to a different locks. So, let's say you put a million sats into this box, which is also why we say not your keys, not your coin, because your keys are equivalent to this value.

That's the neat thing about Bitcoin. It stores value in bits and bytes directly. It's not a password to anything that is separate. The value itself is stored in the information itself. So, if you have 12 words in your head, you literally have Bitcoin in your head. It's not a password or anything like that.

It is the value itself that this stored in your head. And so that's why the keys are equivalent to the coins. So, let's say this key, these 12 magic words, control a million sats, and let's say just for the sake of argument, you put the million sats into this magic box.

So if the key is random and if you manage to keep it private then everything is good. But if you do something stupid and let's say you put the 12 magic words onto a public presentation then it's very unclear who owns these bitcoins. Like there’s a million sats. Five minutes ago it was my million sats. Who owns them now? It's a very difficult concept to pin down in bitcoin. The concept of ownership. So if we look at this magical box, there is a million sats in there. And now we can say with 100% guarantee that this box is now empty and the million sats are 100% gone.

I can say this with confidence because I tweeted this out, not too long ago and, you know, some of the people on Twitter their probably way quicker than you watching this presentation after the fact. So, I know for a fact that these are 100% gone. So 12 magic words again, how can they ever be secure? We spoke about randomness and we spoke about these non-random wallets like “bacon and “word” and so on and so forth and how you should never ever use them. So the security again comes from a strength that is embedded in large numbers. We have 2048 of these special words and if you take 12-word seed phrase, this is 2048 to the power of 12 which approximately is 128 bit security. Which is this very large number if you write it out.

And if you remember the story about the grains of rice and the chess board, that's a way larger number than 18 quintillion. So the quintillion are you know, somewhat in the middle. So we are many orders of magnitude larger than the chessboard story. And just to remind you 18 quintillion was enough to cover all of India one meter deep in rice. And to guess a private key you would have to… like one specific one. You would have to pick out one specific grain of rice out of all of India that is covered very deep in rice with Bitcoin. It's even more involved so you can think of it as the whole visible universe covered in grains of rice.

And you would still have to pick out one grain of rice to break open a wallet so to speak. All right, so if the 12 words are random, then you're more than reasonably secure and if you manage to keep your keys private, then again you're secure and you have nothing to worry about.

So you have to check both these boxes. We spoke about one paradox already. I want to rattle off some of the paradoxes that come to mind when we speak about Bitcoin. So again, keep in mind, all metaphors are imperfect. These are various things that people have said over the years, what Bitcoin is and how it works and what the implications are, don't take any of these too seriously.

But still, I think it's interesting to think about these things. All right?

The paradox of possession. We saw this already very clearly that you can't really possess bitcoin so bitcoin is secret knowledge but you can definitely be possessed by bitcoin as is evidenced by a lot of people that seem to be literally possessed by bitcoin.

So bitcoin is everywhere. Bitcoin is nowhere.

Bitcoin can’t be copied, yet every part of bitcoin can be copied.

Bitcoin is always changing, yet it is unchangeable. So no single line of code. In Bitcoin is the same as it was when it was first created by Satoshi Nakamoto but it's still unchanging in essence. I would like to say that Bitcoin soul has an unchanging character.

Bitcoin is digital, yet it is scarce. Digital scarcity used to be an oxymoron but now we have something that is digital and something that is scarce.

Bitcoin is dead, as the mainstream media pundits will always tell you yet and bitcoin is alive.

Bitcoin is a bubble, yet bitcoin is the pin.

Bitcoin is simple yet bitcoin is complicated.

Bitcoin is elegant yet bitcoin is complex.

Bitcoin is ugly yet bitcoin is beautiful.

Bitcoin is worse is better. It's a great article by Gwern written a couple of years ago.

Bitcoin is worthless, yet bitcoin is too expensive.

Bitcoin is finite, yet bitcoin is endless.

Bitcoin is private, yet bitcoin is completely transparent.

Bitcoin is energy-intensive, yet bitcoin is insanely efficient on what it does.

Bitcoin is slow, yet bitcoin is fast as lightning.

Bitcoin can’t be confiscated, yet bitcoin can be lost.

Bitcoin is text, but bitcoin is money.

Bitcoin is time, and bitcoin is energy.

Bitcoin is savings, and bitcoin is streaming money.

Bitcoin is conservative, yet bitcoin is progressive.

Bitcoin is political, and bitcoin is apolitical.

Bitcoin is lawless, yet bitcoin is the law. When it comes to transactions everything that happens internally in Bitcoin. Bitcoin definitely is the law.

Bitcoin is math, and bitcoin is physics.

Bitcoin is religion, and bitcoin is atheism.

Bitcoin requires randomness, yet bitcoin creates order.

Bitcoin price is important, yet bitcoin price is terribly unimportant at the same time.

Bitcoin pays people, yet bitcoin can’t got bankrupt.

Bitcoin is intangible, yet bitcoin is incorruptible.

Bitcoin has rules, but no rulers

Bitcoin is Love, and bitcoin is Fuck You money.

Bitcoin is a chain yet bitcoin ends slavery. Hat tip to Ben Gunn who brought it to my attention on twitter. This is the one that I really like the most. After studying Bitcoin for many many years it seems that this is very much, very much true.

Bitcoin is 12 words in your head, and bitcoin is 21 million.

Bitcoin is knowledge. And knowledge is power.

So where does bitcoin derive its power from? Bitcoin derives its power from the asymmetry of knowledge. Knowledge asymmetry, information asymmetry, all of cryptographies rooted in information asymmetry. And Bitcoin as we will see in Bitcoin, cryptography is not enough.

So you need different kinds of asymmetries for Bitcoin to work. So one of these asymmetries, is this is true for multiple things, but one of these asymmetries, is that things need to be hard to produce and easy to verify. This is both through in money and in cryptography. Money needs to be hard to produce and easy to verify. For good money to emerge this is always true. Like, if you can't verify the money, then it's terrible money. If it's easy to produce, then again, it's terrible money. For cryptography as well. The solution to a cryptographic puzzle, has to be hard to produce, and it has to be easy to verify as well.

So Bitcoin again, checks both of these boxes. It is very hard to produce and is very easy to verify. And to understand this more deeply will have to look at two of the building blocks of Bitcoin which are signatures and blocks. So to interact with Bitcoin, to use Bitcoin in the meaningful way, you need to have a valid signature and someone needs to find a valid block. These are two essential things that make Bitcoin tick.

Valid signatures and valid blocks. So if you want to do anything with Bitcoin, you need to be able to produce a valid signature and someone needs to be able to produce a valid block. So signatures are private, blocks are public. Signatures are created locally, blocks are created globally. Signatures deal with secret information, blocks deal with public information. Signatures relate to the 12 words and blocks relate to the 21 million. So, I know this was a very general overview of those two things. Of course, it's nuanced. And I'm glossing over many many details, but still the important thing is that the 12 words in your hand and the 21 million, there are two sides of the same coin.

So they're like the two pieces of yin and yang that you need to put together for bitcoin to emerge. One of them is not enough. You need both, you need the private information, which are your 12 words and you need the completely public and publicly verifiable information and the publicly verifiable history of the blockchain, of the thing where the 21 million emerge out from to make a bitcoin work into use Bitcoin in the meaningful way.

So let's put the two together. And as we all know bitcoin is not black and white, so we need to add some color to it. As we all know, Bitcoin is orange, which brings us to act three.

Act 3. Bitcoin is the orange tree.

To understand this tree we’ll have to look at the root problem that Bitcoin solves. And there is no better person to ask what the root problem is that Bitcoin solves than it's greater Satoshi Nakamoto. So, Satoshi, famously said that the root problem with conventional currency is all the trust that's required to make it work.

So, trust is the root problem. And the problem with trust is that trust can be abused. So he famously also said somewhere else that in Bitcoin, we do not have to rely on trust. We can use crypto proof. Those were his words instead of relying on trust. So I would like to show you that this is not enough.

The crypto proof alone is not enough. And to understand this we have to look at how the trust problem was solved historically. So how was the trust problem solved historically? Very easy. We always had some people that were dressed very nicely, with a very nice smile on their face.

And they would say, well, just trust us, we will take care of everything. And you can just put all your trust in us and we will solve the problems for you. And this is how the world works. So we always had authorities that we had to trust. And now supposedly, we can replace this with cryptography, but what happens if we do this, does this really work?

So we have a face of cryptography, unfortunately, but there we go. That is the face of cryptography it seems. It is definitely the face of crypto and so the situation doesn't really change. If you know the people are a bit younger and a bit more technologically involved. And so if the trust comes from the crypto bros, nothing really changes.

The crypto bros just become the new politicians. And that's what we want to move away from, don't we? We always had politicians tell us just trust us. This is the current state of things. So the state would always say trust us and we will figure it out and you the plebs have no say anyway… and Bitcoin… Bitcoin is not about trusting the state.

Bitcoin is about the separation of money and state. And for the separation of money and state cryptography is not enough. If cryptography would be enough, we would have had something like Bitcoin. We would have had cryptographic money for a long time already. So we had keys and letters and those kind of things for a very, very long time.

This is a cryptographic device that is very, very old. This is a ledger that is thousands of years old and we can't magically put them together and have something like Bitcoin because cryptography alone does not provide integrity. Cryptography alone does not provide legitimacy. And to understand… I choose these words very carefully… And to understand why this is the case we have to, at least, you know, like do a little bit of political philosophy and speak to that guy.

And this guy is Thomas Hobbes and he famously said that “authority, not truth creates legitimacy”. And he said this about state power. And as we all know Bitcoin changes you in a massive way. So now we have our own kind of political philosophers and Thomas Hobbes turns into Eric Cason and with Eric Cason says about Bitcoin power is that it’s the “truth, not authority creates legitimacy”. And that is exactly correct. That is exactly right. The authority in Bitcoin comes from truth itself. It doesn't come from any external source. It's a close loop system that builds up its own truth that anyone can verify, you don't have to trust anyone and, and cryptography is not enough for that.

You need something else. You need something else. So I highly recommend to read Eric Cason. He is on the mission to reclaim the word crypto. And you can read his writings on cryptosovereignty.org. And we're going to talk about crypto and cryptography next. So when I say crypto here in this context, most of the time, I mean cryptography. And again, I would like to show you the cryptography is not enough.

Because cryptography requires secrecy. Cryptography requires secrecy, always. Which means automatically cryptography does not provide legitimacy. Because cryptography is not necessarily tied to reality. Cryptography, also doesn't automatically provide any type of scarcity. If this would be the case we would have had scarce digital things for a very long time.

We would have had it before Bitcoin but we don't. We didn't, we needed something else. So crypto most definitely provides… Crypto does not provide scarcity. Period. We have over 9,000 shit coins listed on coin market cap and so it's very, very clear that crypto does not equal scarcity. If you hear crypto, just think “rugpulls”. That's way more accurate. Don't think scarcity, don't think, you know, quick riches or anything like that.

Just think “rugpulls”. You will have an easy life, which brings us to the next section of Act 3, which is “Th Great Rug”.

Here is the problem with “rugpulls”. It ain't what you don't know that gets you into trouble. It's what, you know, for sure that just ain't so. Mark Twain famously said this about rugpulls, and Satoshi also had something to say. What he basically said was “Where there is trust in others, there’s a rug”. I'm obviously paraphrasing, but I can highly recommend you read the books of Satoshi, the all his writings. It's a compilation of all his writings online in chronological order and he was talking about trust a lot. And how trusted third parties are security holes. Again, great piece by Szabo the everyone should read. And of course the great rug. Bitcoin fixes this. Because Bitcoin is not crypto. Bitcoin is not a rugpull. Bitcoin, in fact, is anti-rugpull technology. Bitcoin provides legitimacy. And it provides legitimacy by combining reality and cryptography. It combines also physics and math which a lot of people don't get. And these combines cryptography with another kind of proof. It's not only cryptographic proof.

There is another kind of proof involved. It combines keys with work and most importantly keys and work are not the same thing. They are truly not the same thing there. They're very different. Just like reality and theory is different. And one way to think about reality is the reality is that which survives. And my friend Allen Farrington. He wrote a great piece, only the strong survive, again everyone should read it. And so we have to talk about strengths for a little bit. This beautiful image, I call it Adam’s back. For obvious reasons because Adam back is the inventor of proof of work. And the beautiful thing about proof of work is that it is self-evident.

Proof of work is completely self-evident. You don't need any external source of truth for proof of work to make sense. So proof of work is self-evident and proof of work always deals in transformation. So proof of work is always about transformation. It doesn't matter if it's the pyramids that transformed stones into large pyramids, it doesn't matter.

If it's the ripped guy in the gym, proof of work, always deals in transformation, and if all we have is data, then all we have is computation. So we only have data information and the transformation of this information which is computation, and of course, to do compute, we require electricity and to generate electricity we require energy and energy of course is costly. We cannot print more energy and this is where the integrity of proof of work comes from. So proof of work provides integrity without authority, without crypto keys and without relying on secrecy. So the difficulty adjusted proof of work in Bitcoin surely is the solution to many, many, many problems.

And the more people understand this and the quicker, they understand this, the easier it is to figure out why Bitcoin works. And why other solutions failed and why moving away from the difficulty adjusted proof of work is a terrible idea. You reintroduce all the problems that Bitcoin actually solves. And one of these problems is the problem of time.

So y'all remember to story of the sage visiting the king in India to play a game of chess which had a very unintuitive outcome. I want to tell you a bitcoin riddle, you all probably know a little bit about Bitcoin otherwise you wouldn't watch this and you probably know that Bitcoin has a block time of 10 minutes.

So every 10 minutes a new block comes in, and this is my favorite Bitcoin riddle kind of for one of my favorites because it will tell you how much someone knows about it. How deeply how deeply they looked into it already. So let's assume… again, every 10 minutes a new block comes in.

That's the way things are in Bitcoin. And let's assume that the last block came in nine minutes ago, when will the next block come in? Most people will say something like in a minute or maybe a little bit longer, you know, two minutes something like that. And the correct answer, very counter intuitively, is always 10 minutes. So if you said something else than 10 minutes, then you basically… You made the gambler’s fallacy. So the principle behind this is very similar to you standing at the roulette table. And red came, you know, red came in for like, 15 times in a row and now I ask you that are the chances the red comes again, or what are the chances that white comes? And if you say anything else than 50/50 then, well, you're committing, the gambler’s fallacy. So, 10 minutes this is the magic number. This is the duration that it is about. And every 10 minutes, reality asserts itself, in Bitcoin. Every 10 minutes, truth emerges. Every 10 minutes past become stone and every 10 minutes information is reified.

It's about this duration of 10 minutes. This is the constant in Bitcoin. This is more or less the only constant in Bitcoin. Because everything else emerges out of that. And you could say that Bitcoin measures duration via computation. Like, this is not terribly inaccurate. And further Bitcoin not only measures duration of your computation it also settles 10 minutes of history, every 10 minutes. So it is about these 10 minutes of history. But it's not only about the past. It's also about the future. And we… that's such an important concept to understand… that Bitcoin is fixed in time. It's not, it's not really tied to energy. Or mining Bitcoin doesn't require energy in the sense that the more energy you put in the more Bitcoin are mined that everyone is just greedy. And, you know, like if we want to produce more Bitcoin that's why we use more energy for it. No, energy relates to security and energy relates to the distribution of the 21 million. It doesn't create more Bitcoin. And the reason why we know this is that we have bitcoin supply curve.

So Bitcoin has a predetermined supply. It has an emission schedule, so the supplies emitted over time. And that's why we know in the year approximately 2140, all 21 million Bitcoin will be mined. And this is obviously linked to duration, because with every valid block, new Bitcoin are emitted, and this is how Satoshi solved the problem of bringing new coins into circulation, which is an insanely difficult problem to solve without any authority.

So it is like a natural process. A natural growing thing that emits new coins to all those who choose to secure it. And this is why the genesis of Bitcoin is so important and it's so beautiful and that's the only way to do any fair distribution.

Everything else falls back to authority. That's what I mean when I say Bitcoin is time. I mean these 10 minutes and the past and the future. And how the past is settled and how the future is predetermined. So the difficulty adjusted proof of work is what creates an unforgeable history.

Nick Szabo talked about unforgeable costliness. I think in Bitcoin we should talk about unforgeable history, because the ledger is just a history of transactions. Who owes what to whom? And it has to be unforgeable for it to be good money. Otherwise, it will always be manipulated. And Bitcoin creates this unforgeable history.

The difficulty adjusted proof of work solves the root problem. A lot of people when they start talking about the root problem, they mean the double spending problem, but we framed it as trust and integrity. So the difficulty adjusted proof of work provides trust and integrity. Most importantly, without relying on secrecy without relying on authority.

The difficulty adjusted proof of work solves all the problems of monies past. And I mean it literally. It solved the problems of gold. It solved the problems of fiat, obviously. It solved the problems of all the digital monies that we try to create in the past. So Bitcoin has a very rich history of like… you know, it depends on how long you want to go back, but Bitcoin did not appear out of nowhere.

Ever since the internet emerged people try to do money on the internet that they always failed. And people say they failed because of the double spending problem and so on and so forth. But there's a lot of things wrapped up in the double spending problem. So we already talked about trustless issuance. We didn’t really talk too much about decentralized timestamping.

But if you want to read about it, please read Bitcoin is time. We also didn't talk too much about Cryptanalytic stability. That's one problem that Nick Szabo tried to solve for the longest time. The problem is that you cannot define a cryptographic puzzle or any computational problem where you can be sure that any computer will solve it below a certain threshold of time.

So, let's say, pick any supercomputer, and it will take this supercomputer at least five minutes to solve this problem. You cannot do it. You just can't. That was a big problem of digital monies because you cannot know the breakthroughs in computing. You cannot know if someone comes up with a new architecture or better computer that is 10 trillion times faster and suddenly you can solve this problem in a millisecond. And so this cryptanalytic stability… the problem of cryptanalytic stability was really hard problem to solve. The difficulty adjusted proof of work solves it. Digital scarcity. Again, it used to be an oxymoron. Now it isn't, thanks to Bitcoin we have it. And Data Integrity. That's what I want to talk about next. And of course, the computer scientists listening to this, they will have big question marks in their mind because they all know that we were able to do data integrity before Bitcoin. Like we had multiple ways of doing data integrity.

But I'm here to tell you, no, that's actually not correct because for data integrity to work, you always need to have keys. So how do you do any type of data integrity without secret information? Without relying on private keys? What if all you want to have is just public information?

What if authorities are not allowed, what if keyholders are not allowed? What if we must not have a quorum of people that sign off on the integrity of the information. All the other things, all the other systems that want to remove proof of work from the equation, automatically fall back into a quorum of people, to keyholders that sign off on the information.

It's very much a fiat move where we have authorities to say: “this is the reality, this is the golden evolves. Just trust us. We sign up on this”. All the gold is there just trust us. And you're dealing with paper notes. So, removing proof of work is an absolutely horrible idea that reintroduces all the problems, that Bitcoin solved.

So, how can you do data integrity? How can you do the data integrity without, any private keys? How can you do it? It’s a really hard problem. To understand how data integrity works we will have to take a closer look at this orange again and we'll split it up again.

So we're back into yin and yang again. And we're going to talk about integrity and validation. We're going to talk about the 12 words again and the 21 million and about private keys and public ledgers.

So very briefly, if you have keys and you want to prove the integrity of the keys, it's very easy because you can do key pairs, and asymmetric cryptography. Then we have private keys and public keys. And with one or the other, you can check the integrity of the other. And just, you know this is well known.

This is nothing new. This is all fine and nice and that's very, very easy. If we have keys data integrity and validation is very easy. What if we don't have keys? What if we don't have any private part at all? What if all we have is public data? What if we must not have any keys.

This is so important, like how to do this without any keys at all? How to do it? Well, the answer should be obvious, but it wasn't obvious for the longest time. It was only obvious to Satoshi. And then so, of course, it’s proof of work. Adam Back. And so on and so forth. Because the nice thing about proof of work is that you only have to look?

You only have to look. Proof of work is self-evident. Everything you need for verification is publicly available. Nothing is hidden. No, private keys are needed. There is no authority. There is no secrecy. There's just truth. There's truth embedded in the data itself and that's why it's so beautiful. You just can look at it.

And without, any use of any private keys, you can verify that everything is correct in the data itself. And you can go back to Genesis, and see that no one was able to modify this data in any way, shape or form. And you do not need to trust anyone.

You don't need to trust any quorums, any keyholders, any external sources. The truth is self evident in the data itself. That's what Rodolfo Novak meant when he said the map is not the territory. Like in Bitcoin the map is the territory.

There is no differentiation. You just look at the map. You look at the data and there is no external thing. The truth is self-evident in the data itself. In Bitcoin, truly, the map is the territory. So this was the big brain invention of Satoshi Nakamoto.

Because Satoshi was the first person that was able to think decentralized completely about issuance, about security, about time itself. The timing problem is such a, such a difficult problem to solve as well. Like, I encourage anyone who is interested in other systems to always look at the timing problem.

We don't have fixed time in our universe. And this is why it's such a difficult problem. Just because of relativistic effects alone. Together, orally sequence of events in decentralized computing. It’s a borderline impossible problem. And only the difficulty-adjusted proof of work solves it completely. So Satoshi knew this. Satoshi knew that he had a breakthrough because he said: “I think this is the first time we're trying a decentralized non-trust-based system”

So he realized that with crypto proof, and the reification of information, which is a phrase, I really like. Which I stole from Adam Gibson. We can create digital scarcity, we can create sound money in cyberspace. And he also knew that crypto proof was not enough. He knew the cryptography was not enough.

He mentioned in one of his posts that we have computational proof of the past. Computational proof of the sequence of events. That's what he said. And it's this computational proof… Computational proof is different from cryptographic proof. Because in computational proof in the difficulty-adjusted proof of work there are no private keys involved. It's just pure computation. Pure raw energy if you will. And this is absolutely required to have publicly available information that is consistent in itself that anyone can validate. So bitcoin is knowledge. It is literally true. It is literally true that Bitcoin is knowledge.

Anyone can have the knowledge of the integrity of the system, it's a completely open system. It's completely transparent. You can convince yourself of the 21 million, you can check bitcoins monetary policy, you can check the integrity of the system but the opposite is also true. That knowledge is Bitcoin as we saw Bitcoin is just 12 words in your head.

That's why I believe that at trying to, you know, outlaw bitcoin in any way is equivalent to thought crime because all that Bitcoin mining does, for example, is trying to find random numbers. All that holding Bitcoin entails is having 12 words in your head. So if your government tells you that you're not allowed to hold Bitcoin, that's what they are saying.

You cannot think of “bacon” 24 times. You cannot think of “word” 12 times, you can't have 12 random words in your head. That's what anyone is saying when they forbid you to use Bitcoin. It's of course not enforceable but that's a different kind of speech.

Knowledge and Bitcoin

Bitcoin is private knowledge, 12 words in your head. Bitcoin is public information, public and transparent information which leads to the 21 million.

It's private keys and public ledgers and the S at the end of letters. And it's important because with many, many letters all over the world and you need to have your own valid copy that you in the best case, validate yourself. And if you want to use Bitcoin in any meaningful way, you have to put those two together.

And if you put them together, then the orange emerges. And just, as a very quick example, let's say Ellis wants to send Bob some sats, so Alice needs a private key and she needs a copy of the public ledger and in private, she uses her private key to sign a message, which is a transaction.

And let's say, this message says, I, Alice, want to send 21 sats to Bob and she signs it with her private key. So if everything checks out and if the signature is valid, then the transaction gets broadcast and if the transaction is valid, the Bitcoin network will accept it. And the transaction will land in the mempool which is what connects the private world of private keys with the public world of public ledgers. It connects the 12 and the 21, it is the link between the past and the present and if everything checks out and if the signature is valid, and if a valid block is found after approximately 10 minutes, then the transaction is confirmed, which is what Bitcoin is saying, all the time, every 10 minutes.

But it is saying more than that, with every transaction that is confirmed with every valid block, that is coming in, it also, self-confirms, it's own integrity, always all the time. The beautiful thing about the difficulty-adjusted proof of work in bitcoin is that it's accumulative for over time. It's like layers of amber that solidify the past.

And with this solidified past Bitcoin also says: "moral code confirmed." And as we heard in the very beginning, the moral of bitcoin is: "you shall not inflate, you shall not confiscate. You shall not counterfeit." In short, you shall not steal.

And that's what Bitcoin is saying, every 10 minutes without relying on trust.

If you like my work consider supporting me in writing my 2nd book.

I Miss the Old Satoshi

Sat, 23 Jul 2022 00:00:00 +0000

I miss the old Satoshi, straight from the node Satoshi.
Chop up the code Satoshi, set on his goals Satoshi.
I hate the new Satoshi, the lawsuit Satoshi.
The always rude Satoshi, go on a cruise Satoshi.
I miss the sweet Satoshi, chop up the tweets Satoshi.
I gotta say at that time I’d like to meet Satoshi.
See he invented Satoshi, it wasn’t any Satoshis.
And now I look and look around and there’s so many Satoshis.
I used to love Satoshi, I used to love Satoshi.
I even had the old windows, I thought I was Satoshi.
What if Satoshi made a post about Satoshi?
Called “I Miss The Old Satoshi,” man that would be so Satoshi.
That’s all it was Satoshi, we still love Satoshi.
And I love you like Satoshi loves Satoshi.
I’m glad there’s no Satoshi, all nym no face Satoshi.
That’s very based Satoshi, cuz’ now we’re all Satoshi.

Satoshi

I miss the old Satoshi, straight from the node Satoshi
Sail the Silk Road Satoshi, don’t fork the code Satoshi
I hate the new Satoshi, the absentee Satoshi
The SPV Satoshi, blockchain all the things Satoshi
I miss the real Satoshi, holographic sealed Satoshi
I gotta say, at that time I’d have revealed Satoshi
Before there was one Satoshi, it wasn’t any Satoshis
And now I look and look around and there’s so many Satoshis
I used to love Satoshi, I used to love Satoshi
I even learned to hodl, I thought I was Satoshi
What if Satoshi made a song, about Satoshi?
Called “I Miss The Old Satoshi,” man that would be so Satoshi
That’s all it was Satoshi, we still love Satoshi
And I love Satoshi like everyone loves Satoshi

Satoshi

i miss the REAL Satoshi
the str8 cypherpunk Satoshi
the designer of Script Satoshi
the pro open source Satoshi
i hate the fake satoshi
the bad mood Faketoshi
the always rude Faketoshi
spaz in the news Faketoshi!
i miss the chill Satoshi
chop up some code Satoshi

Satoshi

The Words We Use In Bitcoin

Mon, 27 Jun 2022 00:00:00 +0000

It can’t be said often enough: Bitcoin is confusing. However, it’s not complicated like a Rube Goldberg machine is complicated. It’s just very foreign and thus very misunderstood—it is a completely new thing. “There’s nothing to relate it to,” as Satoshi put it in one of his posts.

Because there is nothing to relate it to, we are all having a hard time wrapping our heads around the various aspects of it. We need to use words if we want to talk about it in a meaningful way, and words are what I will focus on.

I want to talk about two things: (1) the language used in Bitcoin and (2) the language used to attack bitcoin.

Part 1: The Language Used In Bitcoin

Let’s get one thing out of the way: it’s all numbers, all the way down. Bitcoin does the one thing that all computers do, which is actually two things: it takes certain numbers as inputs, does calculations, and presents the result of said calculations to someone else. In Bitcoin’s case, this “someone else” is another node on the network—or multiple, to be precise. When stripped down to its bare essentials, that’s all there is to it: math and messages.

Consequently, we have to use metaphors—and lots of them. Keys, wallets, addresses, signatures, contracts, mining, dust, fork, oracle, orphan, seed, witness—the list goes on.

However, here’s the thing with metaphors: “All metaphors are wrong, but some are useful,” to paraphrase George Box. Undoubtedly, many people are confused precisely because of the shortcomings of these metaphors. All the labels that we apply to the various concepts in Bitcoin are wrong, at least a little bit. Some are wrong a lot. Everyone who ever tried to explain that “your bitcoins are not actually in your bitcoin wallet” to a glossy-eyed newbie knows what kind of confusion I’m talking about.

Unfortunately, this confusion won’t be going away anytime soon. And more worryingly, this confusion is being weaponized by legislators, politicians, and commentators alike. Those who despise Bitcoin are trying to pass laws and plant ideas in people’s heads that are bastardizing how Bitcoin works, as well as the language we use to describe how it works. Consequently, it would be beneficial to get our language straight. After all, how high are the chances of understanding something deeply if the words we use to describe said thing are inadequate?

First, let’s go through some of the words we use in Bitcoin and see where they fall short. We all know these words, and we usually don’t think twice about them. Let’s start with “wallet.”

“Wallet”

A wallet is a piece of software or hardware that makes it easier or more secure to store and/or spend your bitcoin. It’s easy to see that a wallet is neither one thing nor easily defined; just look at all the various forms of wallets we came up with over the years: paper wallet, brain wallet, hardware wallet, mobile wallet, multisig wallet, lightning wallet, watch-only wallet, and so on.

In the end, we have to understand how Bitcoin operates if we want to get a grip on what a wallet is. Here is the gist of it: to create a bitcoin transaction, you need to sign a message with a private key. Consequently, two things are essential for a wallet: key storage and signing. But that’s not enough, usually. To interact with the Bitcoin network, you need to interact with a Bitcoin node. You need a way to access the public information, the “distributed ledger” that is so often mentioned by finance and crypto bros alike.

What we have historically called a bitcoin wallet, thus, is just some software that manages and stores keys and allows the user to easily use these keys to sign and broadcast messages. To increase security, said software might be embedded in a dedicated hardware device. The more effort it is to spend your sats, the lower the risk of theft or loss of funds. A wallet might not have any signing capability at all, as is the case for brain, paper, or watch-only wallets. This begs the question: how useful is the term wallet?

Interestingly, we have already switched to a different term when it comes to seed storage. We are not talking about “metal wallets” or “metal keys” when we talk about key storage; we usually talk about seed storage, metal seeds, or seed plates nowadays.

Further, we now refer to various multi-signature and timelock constructs as “vaults”—a powerful and clear distinction. The vault metaphor makes it immediately obvious that whatever is stored in the vault is there for the long haul. It isn’t spendable easily or quickly.

I hope that, in the future, we will also manage to do away with the generic “wallet” term. When it comes to hardware wallets, a change of terms is already underway. Given that a hardware wallet is nothing but a small device that is used for signing transactions, a more accurate term is “signing device,” which is currently gaining traction thanks to people who understand the technicalities of Bitcoin deeply.

Maybe usage will morph so that whenever someone says “wallet,” it is implied that it is something that isn’t holding massive amounts of value and that said value is spent easily and quickly, as is the case for Lightning wallets. In the end, the “wallet” metaphor will always be wrong in a crucial way: your wallet does not actually hold any of your coins. That’s not how Bitcoin works. It might hold your keys, which brings us to the next word.

“Key”

In the physical world, a key is used to open something. A door, a chest, a locker, and so on. It might also be used to start something: a car, a motorbike, a nuclear missile—you get the idea.

As mentioned before, to create a bitcoin transaction, you use your private key to sign a message. The keys in bitcoin are cryptographic keys, and cryptographic keys can be used to create digital signatures.

This, of course, only makes sense in the world of cryptography. Commonly, a key is used to lock and unlock things. If you want to sign something, you need a pen. This confusing metaphor is not exclusive to Bitcoin, of course. Plenty of other software uses cryptographic keys to sign stuff, which is why in 2010, this abomination of an emoji was introduced: the padlock, “locked with pen.”

Consequently, a “key” in bitcoin is more like a pen, not an actual key. Granted, you can use your key to “unlock” sats that are “locked” by yourself or someone else, but still, no matter what metaphor you use, it will always fall short. It will always fall short because the keys in Bitcoin are data, nothing else. Your private keys are secret information—information that nobody but you should ever know. If someone else gets possession of your private keys, your bitcoin will be their bitcoin.

To make theft or accidental spending as difficult as possible, keys that give access to large funds are held in “cold” storage. The secret information is disconnected from the internet, held on special signing devices that never touch a general computation device.

A “hot wallet,” on the other hand, brings the secret information required to move your sats as close to the network as possible. If you want to spend frequently, your keys have to be readily available. A lightning wallet, for example, is a “hot” wallet: the private keys that allow you to spend your sats are connected to the internet at all times. If your computer or smartphone is compromised, your funds are at risk. Such are the tradeoffs between “hot” wallets and “cold” storage.

“Hot” and “cold” are again, of course, metaphors. A hot wallet is hot like a microphone in a recording studio is hot. It means that it’s charged, fired up, and to be handled with care, not that its temperature actually increased.

We can see that language is neither singular nor static, which makes the line between a useful metaphor and an outright linguistic attack a blurry one.

The “key” metaphor, for example, isn’t terribly wrong. We can actually think of signing as unlocking. The underlying elements responsible for spending sats are referred to as locking and unlocking scripts, and for good reason. These scripts are small computer programs that define the conditions that are required for certain sets of sats to move. You can think of it like this: those who want to move sats have to solve a cryptographic puzzle. Usually, a private key is required to fulfill the spending condition: the key is the key to the puzzle. So if we think “key to the puzzle,” it’s not even wrong. And anyway, I’m afraid we’re stuck with it.

Two more things: the reason why your private key can be represented as words is that it is, just like everything else in bitcoin, information. And the reason why we call these words a “seed phrase” is because your private key is the seed from which all your other keys and, ultimately, addresses are derived from. This brings us to the next word: “address.”

“Address”

This is probably the worst of all. To quote Luke Dashjr: “It’s so bad, we made a BIP to get rid of it.” He is talking about BIP 179, a Bitcoin improvement proposal that’s sole purpose is to propose a new term for “address.” The new term is “invoice,” which is the default in lightning and is actually more accurate—technically speaking—even on the base layer. It is more accurate because bitcoin transactions do not have a “from address,” even though you might think they do, especially if your mind is poisoned with the “address” metaphor.

The concept of a “from address” only exists heuristically. In Bitcoin, only receiving addresses exist. A transaction does not contain a from address. A transaction only contains the aforementioned scripts, which are challenges and solutions to challenges. If you can solve the challenge, you can move the coins.

The way to think about this properly is to think about flows, not coins. Let’s say you take a big scoop of water out of a lake, and let’s further say that this lake is fed by multiple streams. It’s a pristine lake in a mountainous region, so you fill up your bottle to cool yourself off with a refreshing drink. You sit down, take a sip, and ponder the following question: where did the water in your bottle come from?

From the lake, obviously—but from which stream? And how many molecules came from the clouds directly, raining down on the lake? Can you tell, even in principle? A God-like entity probably could, since water consists of molecules, and you could—at least in theory—track said molecules.

You can understand Bitcoin and bitcoin transactions in a similar way: transactions can have multiple inputs and multiple outputs, i.e., inflows and outflows, to stick with the liquid metaphor. However, there is one important difference: there are no molecules in bitcoin; there is only accounting. You can’t track anything for sure; you can only make educated guesses—heuristics that are, in many cases, plain wrong.

There are no molecules in bitcoin because every transaction “destroys” all inputs and creates new outputs. If you are dead-set on thinking about coins—i.e., if you view every UTXO as a coin of a different size—you can think about every transaction as a smelting process. All inputs are liquified in a big furnace, and new coins are created as outputs.

This brings us to the next problematic metaphor: coins.

“Coins”

I always loved this quote by Peter Van Valkenburgh, musing on the locality of bitcoin—or lack thereof:

Where is it, at this moment, in transit? […] First, there are no bitcoins. There just aren’t. They don’t exist. There are ledger entries in a ledger that’s shared […] They don’t exist in any physical location. The ledger exists in every physical location, essentially. Geography doesn’t make sense here — it is not going to help you figuring out your policy here.

Peter Van Valkenburgh

What we call “coins” only exist by convention. The protocol is oblivious to our notion of coins. It only knows sats and spent or unspent transaction outputs. Spent outputs are inputs of past transactions. If the sum of one or multiple outputs adds up to 100 million sats, we call it “one bitcoin.”

Of course, it is way easier to talk about “coins” and “addresses” and “wallets,” because we know these things intimately from our real-world experience. We have an intuitive understanding of these metaphors, so it is clear what is happening if one “coin” moves from one “wallet” to another “wallet”—or so we think.

While the mental image of coins moving from one wallet to the next in an intuitive and easy-to-understand manner is a comforting one, nevertheless, it is wrong. What happens under the hood in bitcoin is much more wonderful, much more elegant, and much more magical than boomer gold coins moving from one leather purse to the next. It has to be. Bitcoin is information, not a physical thing. It is teleported at the speed of light, not moved in any physical sense. It is Magic Internet Money for a reason, and I’m afraid that we all have to understand its inner workings to a certain degree, especially if we want to be properly equipped to fight against any and all linguistic attacks, present and future.

Part 2: The Language Used To Attack Bitcoin

Bitcoin is under attack, always. Money is adversarial by nature because money is used between parties that aren’t fully trusting each other in the first place. Consequently, a monetary system is an adversarial system.

Everyone would love to have something for nothing; to cheat the system and get away with it. Everyone’s a scammer;¹ everyone wants to get some sats for free.

Bitcoin is the biggest honeypot the world has ever seen; everyone and their grandma would love to break it. Further, the powers that be are, at least in part, powerful because of the fiat money printers that are rendered obsolete by the orange coin. Attacking Bitcoin becomes a necessary strategy if your very survival is threatened by it.

But, what parts of Bitcoin to attack? It is difficult to nail down what Bitcoin is and what it consists of in the first place. I like to think of it as a big hot mess of two parts software and two parts hardware—or wetware, to be more precise. A mix of technology and biology, with a large dash of economics on top.

Viewed in this light—that Bitcoin is made up of ideas, people, code, and nodes—it is easy to see that some attacks would be more obvious than others.

An obvious attack would be a software exploit that shuts down a large number of bitcoin nodes, for example. An even more obvious one would be a large-scale attack on its physical infrastructure. If the foundries that produce the current generation of SHA-256 ASIC chips are bombed or various large-scale mining operations go up in flames, we can confidently say that Bitcoin is under attack. In the same vein, if bitcoiners are declared the enemy of the state and are incarcerated or killed en masse, we can also deduce that Bitcoin is under attack.

But: how do you attack an idea? With bad ideas, that’s how. The civil war of the blocksize debate was such an attack on Bitcoin from the inside, and its resolution was a hard fork—an economic instantiation of said idea.

In addition to attacks from the inside, we already had many attacks from the outside. Almost as soon as Bitcoin appeared, it was attacked by politicians, central bankers, traditional investors wedded to the fiat system, as well as the economically and technically illiterate. We’ve heard it all before: bitcoin is only used by criminals, bitcoin is worthless, bitcoin’s value is based on pure speculation, bitcoin is old technology, bitcoin is too slow, bitcoin is a bubble, and so on and so forth.

Allow me to highlight some of the more recent terms and phrases dreamt up by those who hang on the tits of various money printers—whether it be politicians, special interest groups, or crypto bros.

“Unhosted Wallet”

Two words, one goal: pushing users away from sound money and independence into something that we all know too well from the fiat system: trust, and dependency.

The inconspicuous nature of this phrase is what makes this attack so ingenious. Calling a regular bitcoin wallet “unhosted” gives the impression that it should be “hosted” in the first place; that something is missing from how it should be, like an unfinished puzzle or an unsupported beam.

The discussion shouldn’t be about “hosting” in the first place. It should be about control. Who can access your funds? Who can freeze your account? Who is the master, and who is the slave?

Just like “the cloud is someone else’s computer,” a “hosted wallet” is someone else’s wallet. It should be obvious that the centralization of control is what brought about all the monetary problems in the first place, but I’m afraid that we will have to learn the lessons of history and the lessons of Mt. Gox over and over and over again: money held and controlled by others can and will be manipulated. We do not want to make this mistake again, which is why the following became a mantra of sorts: not your keys, not your bitcoin.

Bitcoin wallets are supposed to be unhosted—or, to use a word that wasn’t made up by devilish puppeteers: independent. The purpose of Bitcoin is to bring full sovereignty to the individual and to remove all dependencies on trusted third parties. No rulers, no masters, no hosts. Only peers.

Instead of using the term “unhosted wallet,” one could refer to regular bitcoin wallets as independent or freedom wallets. The opposite of an independent wallet is a custodial service, which means that you have a permission slip, nothing more. By using a custodial service, you destroy what makes bitcoin valuable in the first place. You revert to the permissioned model of money: a debt relationship between masters and slaves, which is the fiat system we want to move away from. Some have all the power; the users have none.

Such a custodial service, a service that they want you to refer to as a “hosted wallet”—but what might be better described as a slave wallet—offers nothing but IOUs: permission slips & debt certificates that can be revoked, multiplied, re-issued, and destroyed at any time. The slave has nothing; the master has everything.

Make no mistake: this is a war of narratives, and the stakes couldn’t be higher. Freedom vs. dependency, control vs. self-ownership, reliance vs. responsibility. If anything, a wallet should be self-hosted, and self-hosting is not a crime. However, we shouldn’t think of “hosts” in the first place. A wallet does not need to be hosted because a wallet, as we’ve seen previously, is nothing but a key—private information—combined with hardware or software that allows you to do something with said key, e.g., derive addresses or sign transactions.

Having 12 words in your head doesn’t make you the owner of an unhosted brain wallet; that’s ridiculous. You don’t need permission to remember 12 words by heart, and any law that makes the act of remembering 12 words illegal is a very, very, (very!) stupid law. But even ignoring this stupidity for a moment, such a law can’t possibly be enforced. It should be rendered meaningless as soon as it is passed. You can’t prove that I have 12 words in my head, just like I can’t prove that you are not thinking about an orange elephant at this very moment. Holding a key is knowing a secret, and here is the thing about secrets: if you don’t tell, nobody knows.

Letting someone else hold your keys destroys all the benefits that bitcoin brings with it. If others could be trusted with our money, we wouldn’t have needed Bitcoin in the first place. And if nobody takes the responsibility of self-custody, Bitcoin will be captured, just like gold before it.

Consequently, the term “unhosted wallet” is an attack on Bitcoin that we should take seriously, along with the implications that a successful ban would entail. It is a most ingenious and mischievous attack—subtle yet effective, re-framing what a wallet is and should be.

The fact that someone sat down and came up with this phrase makes me think that the powers that be are starting to grasp what Bitcoin is and how empowering it truly is, which is why they will do everything they can to keep you numb, dependent, and enslaved. “They want more for themselves and less for everybody else,” to quote George Carlin. “They don’t want well-informed, well-educated people capable of critical thinking.”²

Your browser doesn't support HTML5 video. Here is a link to the video instead.

Original video by Lubomir Arsov, remixed by The Outcome.
Audio by George Carlin, from his 2005 special Life is Worth Losing

Ask yourself: should flipping a coin 256 times be illegal? What about math? What about having certain thoughts? Do we really want to live in a world in which having 12 words in your head makes you an outlaw?

#ChangeTheCode

Another phrase, another implication. The #ChangeTheCode campaign is ingenious; you have to give them that. It implies that Bitcoin’s code can’t be changed, which couldn’t be further from the truth.

Bitcoin is free³ and open-source software released under the MIT License.⁴ This means that anyone can change the code, Greenpeace or not, without having to ask for permission.

Allow me to replicate the license in full:

Permission is hereby granted, free of charge, to any person obtaining a copy of this software and associated documentation files (the "Software"), to deal in the Software without restriction, including without limitation the rights to use, copy, modify, merge, publish, distribute, sublicense, and/or sell copies of the Software, and to permit persons to whom the Software is furnished to do so, subject to the following conditions:

The above copyright notice and this permission notice shall be included in all copies or substantial portions of the Software.

THE SOFTWARE IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. IN NO EVENT SHALL THE AUTHORS OR COPYRIGHT HOLDERS BE LIABLE FOR ANY CLAIM, DAMAGES OR OTHER LIABILITY, WHETHER IN AN ACTION OF CONTRACT, TORT OR OTHERWISE, ARISING FROM, OUT OF OR IN CONNECTION WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS IN THE SOFTWARE.

Anyone is and always was free to change the code of Bitcoin. Bitcoin’s free and open-source nature is why we have thousands of forks and clones in the first place, including forks that implement what the #ChangeTheCode campaigners are proposing.⁵

While this whole campaign to “change the code” shouldn’t be taken seriously in the first place, the tactics behind it shed some light on the attacker’s motivation and on what is yet to come. #ChangeTheCode was funded by Chris Larsen, founder of Ripple, the company that created the shitcoin that is XRP. These kinds of shitcoins can’t compete with Bitcoin on merit because they are permissioned, centralized, and have no reliable monetary policy, among other things. Consequently, they have to resort to smear campaigns and hiring reputational hitmen.

The thing about money is that all forms of money are competing, either directly or indirectly. All monies compete for liquidity, credibility, attention, value stored, and more. Consequently, the marketing departments of virtually all shitcoins are directing funds to dismiss or attack bitcoin in one way or another by implying that Bitcoin can’t be changed, that it is used for illicit activity, or that it is too slow or wasteful.

Bitcoin, however, is neither slow nor wasteful. Proof-of-work is insanely efficient if your goal is to create a monetary system that is free from politics and secured in a public and transparent manner. If you do not value such a system, it will always seem wasteful.

This, coincidentally, brings us to the next attack.

“Proof of Stake”

Let’s get one thing out of the way: there is no proof, there is no stake,⁶ and it isn’t even remotely comparable to its namesake, proof-of-work.

I have written extensively about proof-of-work in the past, so in the interest of not trying to repeat myself ad nauseam, I’ll try to be brief: proof-of-work solved the problem of telling time in a decentralized system, the problem of random selection, the problem of fair issuance, and the problem of unforgeable costliness in the digital realm. It embeds objective truth into a blob of data directly, which is why it is trustless and reliable. The information “speaks for itself,” to quote Satoshi.⁷

Proof-of-stake, on the other hand, has no objective truth, no objective time, no random selection, no fair issuance, no outside cost, no operational cost, and centralizes over time. It is the perpetual motion machine of consensus mechanisms, which is to say that it isn’t a consensus mechanism at all. It is rotten at its core because it relies on trust through and through.

Proof-of-stake should be called “just trust me, bro,” and therein lies the problem as well as the linguistic trickery: by calling it proof-of-stake, one might think that it is comparable to proof-of-work: “Ah, this one is just like the other one! Just another one of those consensus mechanisms, just as good as Bitcoin’s proof-of-work.” No. Wrong. Proof-of-stake is make-believe, and it will inevitably lead to all the ills that the make-believe world of the fiat monetary system suffers from, as the various failures of these systems show time and time again.⁸

Conclusion

Words have meanings, which is why we should choose them wisely and carefully. Bitcoin is not wasteful.⁹ Bitcoin is not closed source.⁴ Bitcoin is not controlled by shadowy supercoders.¹⁰ Bitcoin is not war. An ASIC is not a gun. If anything, Bitcoin is a Wittgensteinian language-game,¹¹ using words and chance for peaceful conflict resolution.

Allocation follows perception, as does public policy. Perception, in turn, is shaped by our understanding and the very words we use to arrive at and describe said understanding.

In a world awash in euphemisms and blatant lies, calling something by its proper name is rebellious in itself. Bitcoin is about freedom and self-sovereignty, not about asking for permission. It is about independence and verifiable truth; extreme ownership and responsibility; hope¹² and human rights.¹³

The best way to fight bad ideas and bad terminology is with good ideas and good terminology. Thus, we should all make an effort to call things by their proper names, try to understand their inner workings, and explain them in simple terms to others.

Bitcoin isn’t as complicated as it might seem at first. It is just very alien, which is why all metaphors we use to describe it break down at some point. As we have seen, wallets, keys, addresses, coins, and many other words we use are insufficient to truly explain what is going on.

The confusion which inevitably arises out of this misunderstanding is used and abused by Bitcoin’s detractors, be it from the church of “fiat” or the cult of “crypto.”¹⁴

Obviously, “honeybadger don’t care” when it comes to most of these attacks. Bitcoin will march on regardless, but that doesn’t mean that we should give in to the various narratives and framings that are set up by those who want to control and oppress (or those who want to make a quick buck). Bitcoin is made of people, and it is individual people that will suffer—either from short-sighted regulations, economic repercussions, poisonous snake oil, or rug-pull-induced concussions.

Bitcoin is a return to sanity, one that is desperately needed in the insane world of QE infinity and negative interest rates. The tragicomedy of our current financial system reads like the introduction to a game show: “Whose deficit is it anyway? An economy where everything is made up and the points don’t matter.”

The points in Bitcoin do matter, as do the words that we use to describe it. Bitcoin is truthful and precise in its speech, and we should strive to be too.

M. Goldstein (2014). Everyone’s a Scammer ↩
“The politicians are put there to give you the idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land. They own and control the corporations. They’ve long since bought and paid for the Senate, the Congress, the state houses, the city halls. They got the judges in their back pockets and they own all the big media companies, so they control just about all of the news and information you get to hear. They got you by the balls. They spend billions of dollars every year lobbying. Lobbying to get what they want. Well, we know what they want. They want more for themselves and less for everybody else, but I’ll tell you what they don’t want. They don’t want a population of citizens capable of critical thinking. They don’t want well-informed, well-educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interests.” —George Carlin ↩
What is Free Software? by the Free Software Foundation ↩
Bitcoin is and always was free and open-source software. It is released under the MIT License. “Being open source means anyone can independently review the code. If it was closed source, nobody could verify the security. I think it’s essential for a program of this nature to be open source.” —Satoshi Nakamoto (2009) ↩ ↩²
Three historical forks that implement what #ChangeTheCode is advocating for are “Bitcoin Oil,” “Bitcoin Stake,” and “Bitcoin Interest.” See this BitcoinTalk discussion from 2018. ↩
Proof-of-stake suffers from the “nothing at stake” problem. “You don’t lose anything from behaving badly, you lose nothing by signing each and every fork, your incentive is to sign everywhere because it doesn’t cost you anything.” ↩
“Proof-of-work has the nice property that it can be relayed through untrusted middlemen. We don’t have to worry about a chain of custody of communication. It doesn’t matter who tells you a longest chain, the proof-of-work speaks for itself.” —Satoshi Nakamoto (2010) ↩
See dergigi.com/pos to understand why proof-of-stake is and always will be a defective consensus mechanism. ↩
Parker Lewis (2019). Bitcoin Does Not Waste Energy ↩
Jonathan Bier (2021). The Blocksize War ↩
Allen Farrington (2020). Wittgenstein’s Money ↩
Michael Saylor, hope.com ↩
Alex Gladstein (2022), Check Your Financial Privilege. See also this compilation of videos from the Oslo Freedom Forum 2022. ↩
One should note that “crypto” is yet another linguistic attack on Bitcoin, making it seem like there are many other projects that are either interesting, viable, or comparable. This couldn’t be further from the truth. Virtually all of “crypto” is a scam. The word “crypto” also leaves out the other half of what makes Bitcoin work, namely the “econ” part. After all, Bitcoin is a cryptoeconomic system. ↩

Freedom and Privacy

Sun, 19 Jun 2022 00:00:00 +0000

We take many things for granted: running water, electricity, washing machines, the internet, our mobile phones, and a myriad of other technologies. But it’s not only tangible things that we don’t think twice about. In free and open societies, we take intangible things for granted as well: language, writing, property rights, free speech, the privacy of our homes—the list goes on. None of these things came about easily. None of these things just sprang into being or were inevitable. We had to plan them, build them, and fight for them, and we have to diligently defend and maintain them. But first and foremost, we had to envision them. We had to make a conscious decision that, for example, a society that values freedom, property rights, and privacy is a society worth building.

Both tangible and intangible inventions have societal implications. The internal combustion engine allows for individual autonomy; the printing press for a more decentralized dissemination of information. No invention is perfect from the get-go. First, we have to figure out what this new thing truly is. Then, a while later, we have to come to grips with the higher-order effects of said invention. We shape the things that we bring into being, and in turn, the things we bring into being shape us.

Take the internet, for example. A profoundly transformative technology that changed the world as we know it. Similar to roads, running water, and electricity before it. However, the internet did not appear fully formed. It evolved over time. It changed and grew, and as it did, our understanding of it evolved with it.

It is remarkable how much time and effort went into planning, engineering, and improving the internet as we know it today. Today, it just works—most of the time. Wireless connectivity, end-to-end encryption, streaming video, e-commerce; the accumulated knowledge of humanity at your fingertips. What used to be science fiction is now science fact, thanks to countless incremental improvements that were and still are being made along the way.

It is instructive to look at and study the history of the internet. Not only to understand where the “world wide web” came from and where it might go but also to understand how other networked technologies might improve and evolve over time. One such technology, of course, is the internet of money: Bitcoin.

The history of the internet is as fascinating as it is extensive. Thus we will have to narrow our scope to one—okay, two—things.

It is no accident that the Lightning Network Protocol (LNP) and the Bitcoin Protocol (BP) are often compared to TCP/IP. While the comparison is apt, with LNP/BP laying the foundation of open, global, and permissionless value transfer, I would like to focus on a different layer of the internet’s protocol stack. The layer that was—and still is—responsible for standardized text transfer on top of TCP/IP: HTTP.

The Transfer of (Hyper)Text

In the beginning, there was plaintext.

A little over 30 years ago, a humble draft was published by a rather unknown computer scientist at the time. The 660-word document was part of a larger collection of ideas—ideas that we now know as “the internet,” or, more accurately, “the world wide web.” Written up and proposed in March 1989, the documents that started it all didn’t reach too many people at first. After all, it was just a draft for a couple of computer scientists interested in networked computing. The name of the draft? Hypertext Transfer Protocol, better known today as HTTP.

It took five years more until Tim Berners-Lee, Roy Fielding, and Henrik Frystyk Nielsen managed to formalize said draft and publish it as a “request for comments” to the Network Working Group. After lots of thought, debate, and contemplation, RFC 1945 was published in May 1996: HTTP version 1.0.

The story of HTTP shows one thing rather clearly: what we know today as the internet is not a single thing. It is a suite of protocols and ideas that work together to facilitate the exchange of information, a suite of protocols that evolve and improve, often subtly and gradually.

Similarly, Bitcoin is a suite of protocols and ideas that work together to facilitate the exchange of value. And, just like the internet before it, some parts of this novel technology will have to evolve and improve as we learn more about its properties and the wider implications that come with the technical choices of the past.

The similarities between the Hypertext Transfer Protocol and the Bitcoin Protocol are almost too perfect. In the beginning, the only thing that the Hypertext Transfer Protocol understood was plaintext. Everything was out in the open, for everyone to see, always. If you knew where to look and if you were curious enough to do the looking, you could easily figure out who was talking to whom and what was being sent over the wires.

While some members of the technical community undoubtedly understood the societal implications of unencrypted communication protocols early on, it took a little longer until this understanding was shared by the wider public. Arguably, a lot of people still fail to appreciate the implications of full transparency today.

One of the figures who understood the importance of privacy early on was Eric Hughes, who published an appeal to move towards more private forms of communications in 1993. The appeal opened with these lines:

Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.

Eric Hughes

Almost 30 years later, Hughes’ words keep echoing in the heads of those who appreciate the importance of privacy in the electronic age. For many, the digital nature of the modern world makes privacy a necessity, not a luxury.

Soon after the publication of Hughes’ manifesto, the first efforts to change the transparent nature of HTTP were being made. With the introduction of HTTP over SSL in 1994, the company Netscape was the first to champion these efforts. Again, it took another five years until this idea was formally specified in another “request for comments”—RFC 2818, better known today as HTTPS.

However, all the technical developments were only one side of the issue. The other side was political and social, and it might be best summed up by the following question: “Why should I care?”

The Implications of Transparency

Allow me to repeat the words of Eric Hughes: “Privacy is necessary for an open society in the electronic age.” Why is that?

Let’s have a thought experiment to understand the issue at hand. Imagine a world in which every word you say, every thought you have, and every move you make is surveilled, analyzed, judged, and potentially prosecuted. Think the wrong thought, and the police will come knocking at your door to arrest you for wrongthink. Tweet the wrong thing, and your access to banking, healthcare, and insurance will be revoked—or worse. This is the world portrayed by George Orwell in his dystopian novel 1984: a world of a sociopathic totalitarian state, a state of total surveillance and, consequently, total control. If freedom is something you value, this is not a world you would want to live in.

Unfortunately, encryption was not the default when the internet first came about. This is why we are partly living in Orwell’s nightmare—at least some of us, some of the time. The lack of strong encryption made it possible to easily and cheaply spy on everyone and anyone. As the global mass surveillance disclosures of Edward Snowden have shown, this spying did—and still does—happen on an unprecedented scale. Consequently, efforts have been made to make online communication more private in order to protect the liberties of netizens all across the world.

Science-fiction authors envisioned the internet. Engineers built it. Eventually, everyone used it, and we had to learn—slowly and painfully—that sending and storing information in plaintext is not beneficial to a free society.

We had to re-envision some parts of the World Wide Web to truly make it work for all, not only for those in power. We had to embed strong privacy and security guarantees into base protocols and applications alike, to protect the most vulnerable from malicious actors and government overreach. Without HTTPS, SSL, PGP, and similar protections, standing up to or escaping from authoritarian regimes is virtually impossible—as is investigative journalism, protest, and dissent.

However, as recent events have shown, this is not only true for regular communications. It is also true for financial communications.

As is often the case, history rhymes: Cypherpunks and economists envisioned what we now know as Bitcoin. Engineers built it, and, eventually, everyone will use it, not only those who need it most right now. And because history rhymes, we will probably have to learn, again—slowly and painfully—that sending and storing financial information in ways that can be analyzed by everyone and anyone is not beneficial to a free society. In fact, it precludes it. Consequently, we will also have to move from HTTP to HTTPS in the Bitcoin world unless we want to suffer the societal consequences of complete and utter transparency.

From HTTP to HTTPS

The lack of strong encryption made it easy—and, more importantly, cheap—to build PRISM, ECHELON, and similar dragnet surveillance systems. It is hard to get rid of these systems by political means once they are put in place. The power of squashing dissent with the push of a button is too sweet to give up. The solution has to be found in cryptography, not policy.

In the digital realm, cryptography is what enables privacy. It should go without saying that privacy isn’t about having something to hide. Privacy is about the freedom to reveal yourself, your thoughts, and your preferences selectively. It is about freedom and the protection of freedom, not secrecy. The S in HTTPS derives from security, not from surreptitiousness.

History is a great teacher when it comes to the importance of privacy, which is why, today, your right to privacy is enshrined as a basic human right in both the Universal Declaration of Human Rights and the Covenant on Civil and Political Rights.

No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honor and reputation. Everyone has the right to the protection of the law against such interference or attacks.

Article 12 of the Universal Declaration of Human Rights

We build walls, doors, locks, curtains, drapes, shades, and tinted windows to ensure certain privacy guarantees in the physical world. Similarly, we’ve built digital encryption and signature schemes to ensure privacy and authenticity in the digital world.

Consequently, in the digital world we all live in, “encryption is a human rights imperative,” as Grant Gilliam has so succinctly put it. It is a requirement for a free and functioning society, just like the privacy and security of your own home.

Nothing shows this more clearly than a glance at those parts of the globe where the freedoms we take for granted are under attack (or don’t exist in the first place). The list of countries and regions where this is the case is almost as long as the list of journalists, dissidents, activists, and human rights advocates that have been deplatformed and imprisoned in the last six months—just for voicing their opinion. It doesn’t matter if it’s Cuba, China, Afghanistan, Palestine, Hong Kong, or Canada: if your behavior can be surveilled and analyzed, it will be surveilled and analyzed. And on a long enough time scale, you might say or do something that is deemed offensive by someone, and, consequently, your bank account will be frozen—or worse. In the words of Cardinal Richelieu: “Give me six lines written by the most honest man, and I will find something there to hang him.”

There is no better way to check your financial privilege than to listen to the stories of those who are less fortunate, those who aren’t born into liberal democracies that guarantee certain freedoms, that hold certain truths to be self-evident. Whether it’s Ire Aderinokun in Nigeria, Mo in Sudan, or Kal Kassa in Ethiopia—walking a mile in their respective shoes will show you in an instant that secure communication and financial privacy are not optional.

A state of total surveillance is a state of coercion and tyranny, not a state of safety and freedom, as it sometimes is sold. It is also not a state of innovation since surveillance stifles the development and discussion of new ideas.

More often than not, new ideas happen to go against the status quo; without privacy, these ideas can’t be developed. Anything that challenges the current thinking will be squashed by the powers that be—whether it is the church, a large corporation, an authoritarian regime, a state, or society in general.

A free society must allow for the free and private flow of information, or it can hardly be called a free society. Without privacy, freedom is hollow. Without freedom, a society will ossify and self-destruct.

Conclusion

Privacy is not optional. The freedom to say and to think what you want, to speak and to think freely, requires privacy. We must have the freedom to think and speak in private, to communicate without fear of immediate retribution, and to express ourselves fully—foolish and mistaken as we might be. It is this freedom that allows us to test out and discuss ideas.

It took the Snowden revelations to show the world how disastrous the consequences of non-private communications truly are. The full extent of the global dragnet surveillance machinery had to be exposed for things to change. But change they did, and today, we take the secure connections of HTTPS for granted, as we do end-to-end encrypted chats.

As we shall see in the next part of this series, the current state of the Bitcoin Protocol is reminiscent of the early days of the world wide web. When it comes to value transfer, unfortunately, HTTP is the default. The security and privacy guarantees of HTTPS aren’t the default just yet, but with enough will, vision, and engineering, they soon will be.

Cover image (cc-by-nc-nd) David Melchor Diaz.

Inalienable Property Rights

Sun, 03 Apr 2022 00:00:00 +0000

Your browser doesn't support HTML5 video. Here is a link to the video instead.

Video bitcoinized by RD ₿TC, based on an edit by Ampleforth.
Original source: An interview with F.A. Hayek (1984)

Law. Language. Money. The three paradigms of spontaneous and emergent order in society. Moral questions are at the root of it all:

Who should be allowed to speak?
Who should be allowed to publish?
Who should be allowed to have property?
Who should be allowed to defend said property?
Who should be allowed to issue and control the money?

It might not be obvious at first, but these questions and their respective areas - law, language, and money - are all related. They are related in general, but, more importantly, they are intimately related in the Gordian knot that is Bitcoin. Allow me, at least for a moment, to try to untangle this knot. Hopefully, without losing the thread that makes all of it hang together.

Let's begin with the last question: the issuance and control of money.

Issuance and Control of Money

Permit me to issue and control the money of a nation, and I care not who makes its laws.

Mayer Amschel Rothschild

As Hayek pointed out in the Denationalisation of Money, the government monopoly on the issuance and control of money is the root of all monetary evil.¹

If you control the money, you control the purchasing power. Which, in turn, allows you to control most other things.

This is neither hard to see nor hard to understand: if you can dictate who gets the money, you can dictate who is well off and who is not. If you can decide who is allowed to create new money, you can decide who has to work for money and who gets it unjustly, with the stroke of a pen or the push of a button.² If you can control the flow of money, you can decide who can pay, who can get paid, who can withdraw, who has access to their bank accounts, and who has access to financial infrastructure in general. In short: you can decide who will be deplatformed from society. In the most extreme cases, this is a matter of life and death. Who gets to eat and who must starve; who gets to prosper, and who must perish.

This is why questions on the control and issuance of money are first and foremost ethical questions.³ It is a moral problem, not a technical one.

The nature of money is as multifaceted as it is elusive. Without a deep understanding of money and an appreciation for its importance, it is very hard to understand the ethical quandary of money production and dissemination.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Henry Ford

Money can be traded for goods and services. These goods and services are produced and offered by strangers. The "stranger" part is important because money is the one thing that effectively and peacefully allows us to scale across trust barriers. With money, you don't need to trust your counterparty—that's the whole point. If the counterparty is a good friend of yours, you can rely on credit. Final settlement is what removes the trust barrier and allows societies to scale.⁴ Without money, human cooperation has to rely on credit relationships. Everyone has to remember who owes what to whom. Without an external representation of these relationships—if everyone has to keep all these ratios in their head—human cooperation can't scale beyond Dunbar's Number, resulting in a maximum group size of about 150 people.

Money, however, is not only used for scalability. It is also used for measurement. Thus, in the grand scheme of things, money is a measure of what society owes you. The whole purpose of money is that you can redeem it for something else, anonymously and with final settlement. Again: Final settlement means that the deal is done; you are not indebted to your trading partner anymore. With the exchange of money, the exchange is final.

Consequently, money is the life-blood of all large-scale economic activity. The importance of money and the free flow thereof can't be overstated. If we want to live in a free, peaceful, and prosperous society, we must not interfere with the issue and control of money. After all, as Frédéric Bastiat famously said, "When goods do not cross borders, soldiers will."

Fundamentally, there are two ways to get your hands on the things of strangers: trade and violence.⁵ The difference between cooperation and conquest is that one interaction is voluntary, while the other is not. Money not only facilitates and scales trade, it is also used to express individual preferences and valuations. How much are you willing to spend for a certain good or service? Are you willing to spend money at all, or would you rather save? How long are you willing to hold on to your money? How much are you willing to invest in certain ventures? Answers to such questions are expressed in the language of money, which is why the flow of money is not dissimilar to the flow of information, or speech.

This brings us to the next question. The next two, actually: who should be allowed to publish? And, who should be allowed to speak?

Freedom of Speech (and Publication)

Give me the liberty to know, to utter, and to argue freely according to conscience, above all liberties.

John Milton

Without free speech no search for Truth is possible; without free speech no discovery of Truth is useful; without free speech progress is checked, and the nations no longer march forward towards the nobler life which the future holds for man. Better a thousandfold abuse of free speech than denial of free speech. The abuse dies in a day; the denial slays the life of the people and entombs the hope of the race.

Charles Bradlaugh

Without an unfettered press, without liberty of speech, all the outward forms and structures of free institutions are a sham, a pretense—the sheerest mockery. If the press is not free; if speech is not independent and untrammelled; if the mind is shackled or made impotent through fear, it makes no difference under what form of government you live you are a subject and not a citizen.

William E. Borah

Countless philosophers, authors, thinkers, activists, freedom fighters, saints, revolutionaries, and religious leaders have made this point in the past: freedom of speech, the ability to speak freely without censorship, is absolutely essential for a free society. We must be able to identify and speak about problems to have a chance of fixing them. And, more importantly, we must be able to express our thoughts freely if we want to think in the first place.

Sound conversations facilitate distributed cognition, much like sound money facilitates distributed production. And just like the purpose of money lies in exchange, the purpose of speech lies in dialogue (or dia-Logos, to use the Vervaekian vocabulary).

In the beginning was the Word, and the Word was with God, and the Word was God. The same was in the beginning with God.

Gospel of John

There is a reason why the Logos is sacred. The divine Word. Speech, statements, discourse. It is discourse that makes the freedom of publication a necessity. After all, what use is your right to free speech if nobody will ever be able to hear you?

The U.S. constitution got this right:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

First Amendment to the United States Constitution

Freedom of speech. Freedom of the press. It is the first amendment for a reason, since it is so unbelievably important. If we have free speech, we have a chance at liberty. If we lack free speech, we have the certainty of tyranny.

Freedom of speech is the great bulwark of liberty; they prosper and die together: And it is the terror of traitors and oppressors, and a barrier against them.

Cato, Letter Number 15

Liberty is meaningless where the right to utter one's thoughts and opinions has ceased to exist. That, of all rights, is the dread of tyrants. It is the right which they first of all strike down. They know its power. Thrones, dominions, principalities, and powers, founded in injustice and wrong, are sure to tremble, if men are allowed to reason of righteousness, temperance, and of a judgment to come in their presence.

Frederick Douglass

For all our flaws, this is the one thing we got right. The Logos is sacred, as it should be.

Bitcoin is Free Speech Money

Why is all of this important in the context of Bitcoin? As myself and others have argued many times before, every component of bitcoin is text, which makes bitcoin equivalent to speech. Bitcoin is Free Speech Money, both figuratively and literally.

What Bitcoin's code facilitates can be understood as a language game, an ongoing process of publication and rejection.⁶ Miners publish blocks, full nodes accept or reject said blocks, users publish transactions, ASIC chips publish hashes of random inputs, and so on. "It is all text, all the time," as Beautyon⁷ has so succinctly put it. Consequently, as he points out, "it cannot be regulated in a free country like the USA with guaranteed inalienable rights and a First Amendment that explicitly excludes the act of publishing from government oversight."

Understanding these fundamentals is important in more ways than one. If we mistake speech for something which it is not—ammunition, for example—we run into a conflict with the First Amendment, as the Crypto Wars have clearly shown in the past. Because of the nature of information, outlawing speech will always lead to ridiculous consequences, such as illegal numbers, illegal primes, illegal art, illegal books, illegal sounds, illegal t-shirts, and all the rest of it. It can also lead to dangerous consequences: if the stifled information is a warning signal—or some other indication that something is wrong—error correction can't happen.

However, words convey meaning, as does information. And this meaning is and always will be disconnected from the form that said information takes.⁸ Words are pointers, not reality. If you outlaw a certain word, people will just use something else in its place, something that will convey the same idea, something that will have the same meaning. This is also why outlawing any piece of information is not only futile but ridiculous. Information can take on virtually endless forms. Consequently, by outlawing a certain piece of information, you automatically ban books, music, and all other possible representations of said information, which, depending on your encoding, might be anything.⁹

We went through this in the past. The classification of RSA as munition led to exactly such a conflict of free speech, which is why t-shirts that have the forbidden information on them were printed in the first place: to show how ridiculous it all is.

The Crypto Wars have never ended.

This is precisely why outlawing bitcoin unavoidably leads to thoughtcrimes, illegal numbers, illegal primes, and illegal speech. If publishing a certain block, nonce, or transaction is ever deemed illegal, the publication of said block, nonce, or transaction by ways of books or the press will be illegal too. And because all aspects of Bitcoin are information, having certain thoughts—such as 12 words in your head—would be illegal too.

Which brings us to the question of enforcement, and the last two questions of our initial list: Who should be allowed to have property? And who should be allowed to defend said property?

Enforcement & Defense of Property Rights

In the physical realm, property rights are enforced by violence or the prospect thereof. It doesn't matter much if an individual, the Mafia, or the State is the ultimate dispenser of this violence. The fact that there are no unbreakable safes, no unpickable locks, and no unbreakable glass—in short, no indestructible barriers—requires retaliation if property is violated.

This raises the question: what exactly constitutes a violation of property rights? In liberal democracies, the "trias politica" of the state—legislative, judicial, executive—is what tries to answer this question and resolve disputes. As Bastiat put it, the law exists because property can be violated, not vice-versa.

Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.

Frederic Bastiat, The Law

The fact that physical things are scarce and can be stolen or destroyed is what brings property rights into existence in the first place. Property rights are a solution to the potential conflict of who can use which scarce resource.

The informational realm is very different. Information is non-physical; it can not be attacked or destroyed directly. As Wei Dai put it in his b-money proposal: "the threat of violence is impotent because violence is impossible, and violence is impossible because its participants cannot be linked to their true names or physical locations."

Information itself doesn't have a physical location. The nature of information is such that information—knowledge—can only be shared, not stolen. Information has non-scarcity built-in. To distribute information is to copy it—with perfect fidelity and without sacrifice. The speaker still retains his knowledge. Consequently, Bitcoin does not create digital information that can't be copied. Such a thing can never exist.

What Bitcoin does is it creates an infinite game that anyone can join, a game with certain limitations. These limitations are not unlike the limitations in a game of chess. The squares on the board are scarce because everyone wants them to be scarce, not because they can't be copied or modified. We could play a different game with twice as many squares, but that doesn't mean that this game will be played. Like a game of correspondence chess, Bitcoin is a game of language. A game in which various players utter phrases to each other that are meaningful to them individually. Messages are passed back and forth, and participants do nothing but accept information they deem valid and reject information they deem invalid. It is Dialogos at its core, utilizing the nature of information to its advantage, as Satoshi pointed out.

In a nutshell, the network works like a distributed timestamp server, stamping the first transaction to spend a coin. It takes advantage of the nature of information being easy to spread but hard to stifle.

Satoshi Nakamoto

Let me repeat the second sentence for emphasis: Bitcoin takes advantage of the nature of information being easy to spread but hard to stifle.

We must accept that the nature of information is very different from the nature of physical objects. While you can own an apple, you can't own a word or a number in any meaningful sense. If you want to exclusively know something, then you must not share it. You must keep it secret. As George Bernard Shaw so succinctly put it: "If you have an apple and I have an apple and we exchange these 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."

These two sentences perfectly encapsulate the problem of digital money. You can't double-spend an apple, but when it comes to information, there simply is no way to not double-spend it. Passing on information is "double-spending" said information, which, coincidentally, makes the idea of "digital scarcity" an oxymoron. Bitcoin does not solve this oxymoron; it circumvents it. The rules of the game make invalid information useless, not uncopyable. Blockspace is scarce like the squares on a chessboard are scarce: by social consensus on how the game is supposed to be played.

The question becomes: how is the game supposed to be played? What are the rules of the game, and who can change them? Bitcoin's Blocksize War¹⁰ was about this question. The resolution of the blocksize wars showed one thing clearly: in the end, individual users define, verify, and enforce the rules. The full node is sovereign, as are the users behind said nodes.

An apparently overwhelming economic interest group [wanted to change the rules]—85% of miners, many big-block philosophical supporters in exchanges, payment processors, a superficially daunting business lobby group—and they lost, because the market prevailed, and activist investors said NO. And meant it.

Adam Back

This precedent is important if one wants to understand the various incentives and dynamics that secure the Bitcoin network. While enforcement of Bitcoin's rules is automated via code, what Bitcoin is and what it should be—which rules are sacrosanct and which rules might be changed—is a matter of overlap in individual perception, not dictate. There is no instance that is in charge of the rules. There are only players that want to play according to certain rules, and once they have a way to communicate with each other, the game can be played.

It is important to note, however, that Bitcoin is an ongoing, infinite game.¹¹ It started with the Genesis Block, and it has been and is being played by myriads of players ever since.

The goal of the game is to create an indisputable past in an ongoing fashion, and it goes something like this:

Miners are rewarded with sats to create and protect the past
Nodes validate this past, creating the network that pays the miners
Users imbue sats with value

Users, nodes, and miners are not exclusive roles. You might be one, two, or all three.¹²

It's peaceful, I swear. Even with fiat dying on the ground.

The question about what Bitcoin was and what the rules of the game have been are visible to all. Dispute arises when we want to define what Bitcoin is and, more importantly, what Bitcoin should be in the future. Rule agreement happens in the social layer; enforcement happens via code.

Further, every player is in charge of his own rules. Thus, to introduce a new rule, you would have to convince every player that your rule is worthy of adoption. That it is better, fairer, or more fun to play with your new rule. And if your new rule is incompatible with the game that we have all played in the past, you will have to convince everyone—otherwise, you will split the game in two, creating a fork.

By making rule validation part of the ongoing play itself, Satoshi managed to create a system that is verifiably unchanging. And because nobody is in charge, you can always choose to play by the original rules.

The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime.

Satoshi Nakamoto

This is why the blocksize war was not really a war about block size; it was a debate about the soul of Bitcoin. A dialogue about Bitcoin's future, a disagreement about what Bitcoin is and should be.

The debate was, in the end, resolved with a chain split. An incompatible rule change that—because not everyone agreed with the incompatible change—split the Bitcoin network, and its community of users, in two.

This has happened multiple times since, and it will most likely happen again. It is an unavoidable consequence of any decentralized game. Everyone is free to play by their own rules. Everyone is free to fork off.

A Strange Loop of Law, Language, and Values

Allow me to revisit the moral questions that we outlined in the beginning and answer them on my behalf—which is to say Bitcoin's behalf, strangely enough. Because, at least currently, my rules—the rules that are responsible for enforcing the answers to these questions—are in consensus with the Bitcoin network.

Who should be allowed to speak? Everyone.
Who should be allowed to publish? Everyone.
Who should be allowed to have property? Everyone.
Who should be allowed to defend said property? Everyone.
Who should be allowed to issue and control the money? Everyone and no one.

The answer to the last question shines light on a common misconception in Bitcoin: miners are not creating bitcoin; they are discovering bitcoin that already exists in the mathematical space defined by the protocol. The issuance of bitcoin is fixed in time, not computation. It is pre-determined via the rules of the system and completely unrelated to its energy expenditure. Issuance and security—and transaction throughput, for that matter—are completely orthogonal to each other, as Pierre Rochard¹³ and others have correctly pointed out in the past.

Above all, the question that is the hardest to grasp for those new to Bitcoin is the question of who is in charge of the rules, which brings us to a final, crucially important moral question:

Who should be allowed to force others to change their rules? No one.

You can't force me to play by your rules because I can choose to play this game how I please. All I need is a way to listen, think, and speak. And as soon as some other player agrees with my version of the rules, a networked game can be played.

In the end, this agreement is a question of values—moral values, first and foremost, but economic values too. Consensus arises if enough people play by the same rules. For this to happen, players first need to agree that the game is worthy of being played; that the moral values embedded in the game are something they value. It is this idea-value feedback loop that brings economic value into existence.

Bitcoin is so weird because it does the seemingly impossible: it pulls itself up from the bootstraps, becoming more valuable and more secure as time goes on. In short, Bitcoin issues bitcoin to secure itself. The network brings sats into existence, and it is the value of these sats that secures the network in turn.

It's all interlinked. Sats only exist because the Bitcoin network exists. The network continues to exist because sats exist and have value.

Bitcoin's core rules are "set in stone" because of the dynamics of this ongoing game of words and values. The rules are embedded and linked to the past; existing players value the rules of the game, or they wouldn't have joined voluntarily in the first place. As we shall see, value is linked to security, which is probably the most confusing thing about Bitcoin's strange loop of law, language, and money. If we can't rely on trust or violence, we have to rely on mathematics and money.

This is why Bitcoin had to grow like an organism to become truly resilient. Without a trusted third party, both value and security have to grow organically over time. This is why Satoshi did not welcome too much unnecessary attention in the early days.¹⁴ It was his responsibility to protect Bitcoin when it was still a sapling. Bitcoin is not a sapling anymore, but the same forces are still at play: an endless loop of words and values, protecting themselves by running the numbers.

Looting the Loop

Because Bitcoin is just information, it has to use information to protect other information via a process of hiding and binding. The confusing part in Bitcoin is the binding part because Bitcoin, as we alluded to earlier, uses economic binding in addition to the good old mathematical binding of public-key cryptography.

We should remember that information can only be protected probabilistically, no matter what. As we have seen, information is non-scarce. You can have the same idea as someone else without stealing the idea. No matter the secret, in theory, you could always be lucky and guess the secret.

The reason why modern cryptography works is that it makes use of an outrageously large search space, which makes any randomly chosen secret virtually impossible to guess in practice. We can confidently slap the label "impossible to guess" on it because guessing—flipping bits—requires time and energy. In Bitcoin, for example, the space of all possible private keys is so mind-bogglingly large that no supercomputer could ever guess it in a reasonable amount of time. It will always take millions of years, even using the best computers that we could possibly build. This is why, practically speaking, securing information with strong cryptography is unbreakably secure. Given that the private information remains private, of course.

Using private information is the conventional way to secure public information cryptographically. It is also the conventional way to ensure its validity and integrity. Someone holds a private key, and this person or entity is responsible for keeping the key secret. Consequently, the security/integrity of the encrypted/signed public information relies on this trusted third party.

Here is the riddle to be solved: how can we create public information with similar security and data integrity guarantees without the use of any private information?

Remember that money is just a ledger, a list of who owes what to whom. If we want this ledger to be trustworthy, it needs to be public and auditable. Further, we need strong assurances of authenticity, i.e., we need to be able to trustlessly verify that nobody tampered with past records and that the records are not made up. That's why we need the costly signal of proof-of-work: to create a past that is unfathomably expensive to fake. You are bound to the result via the very real costs that had to be sunk into creating the signal in the first place.

In Bitcoin, anyone can look at the block hash of the current block, 729170, and know at a glance, just by looking at the leading zeroes, that a lot of work—or, in other words: time, energy, and money—went into creating this string:

0000000000000000000627b7cbed46b1184677d48fef56649ef269bc3bfc345c

It was costly to find this number. Someone or something had to think very hard to be able to speak it. The reason why we can be so confident in the costliness of this block hash is that—according to the rules—its very existence is highly improbable. The fact that it exists and that it is valid is what makes it part of the ongoing game that all bitcoiners play. Its validity makes it accepted by the network, turning it into one building block of the timechain's past.

Further, this building block contains all of Bitcoin's history. It contains a hash of the previous block, and the previous one contains a hash of the block that came before, and so on and so forth, all the way back to the Genesis block. This little piece of information speaks for all of Bitcoin's unchanging history up to the point of its creation. A history that you can't simply make up—you have to bring it into existence by rolling the dice, by playing the game according to its rules.

One of the clearest thinkers when it comes to this property of proof-of-work is probably Adam Gibson, who wrote at length about this reification of information. Because thinking requires energy, and because playing in accordance with the rules requires thinking, Bitcoin's blocks are informational constructs that behave as if they have concrete, material existence.

Demanding a low entropy output from a hash function results in a costly signal which is very unambiguous and easy to verify [...] The creation of these hashes represents a kind of reification of information. The zeros in the above block hash digest are just a pattern, but hidden in that pattern is a real energetic raw cost, that can be quantified. [...] In an adversarial environment, one in which there are stakes, picking out the "real" from the "fake" means identifying signals which are objective, and the only signals that are objective are the ones that are demonstrably costly. [...]

Adam Gibson

Demonstrably costly signals are the only thing that can publicly prove that something has happened—without the need of any secret information. And, more importantly, without the need for any keepers of this secret information. This is also why all good money needs to have unforgeable costliness, as Szabo pointed out in the past. Anything that doesn't have any real cost—cost that is immediately obvious and can be verified by anyone at a glance—can be trivially forged or simply made up. In the words of Hugo Nguyen: "By attaching energy to a block, we give it 'form', allowing it to have real weight & consequences in the physical world."

If we remove this energy, let's say by moving from miners to signers, we reintroduce trusted third parties into the equation, which removes the tie to physical reality that makes the past self-evident.

It is this energy, this weight, that protects the public ledger. By bringing this unlikely information into existence, miners create a transparent force-field around past transactions, securing everyone's value in the process—including their own—without any use of private information.

Here comes the part that is tricky to understand: the value that is protected is not only value in the monetary sense, but the very moral value of the integrity of the system. By extending the honest chain with the most work, miners choose to act honestly, protecting the very rules that everyone agrees to. In turn, they are rewarded monetarily by the collective that is the network.

It is important to differentiate between morality and monetary value because Bitcoin wasn't created to make money; it was created to fix the money. It was created to go beyond the broken moral frameworks of existing monies, to bring something into existence that can't be captured and corrupted easily.

This is why Satoshi chose to build a system with an unchanging soul. This is why the rules have been "set in stone" since day one. Bitcoin's consensus rules are what provide definitive answers to the ethical questions listed in the opening paragraph. Questions of money production, control, freedom, and sovereignty. Bitcoin embodies moral values; its rules define how the game of money should be played. Stray from these values, and you will destroy what made Bitcoin valuable to people in the first place. Break the moral code, and it will be worthless in the long run.

The circular nature of Bitcoin makes everything hang together: the supply cap of 21 million derives from the full sovereignty of the user over her node. It is protected by a symbiotic relationship between users, miners, and the nodes that make up the network. Bitcoin puts the individual at the center, removing the need for rulers and putting rules in place instead.

Bitcoin is free software, free as in freedom. As long as users have and make use of the four essential freedoms inherent in free software, anyone is able to run the numbers and voice their individual preferences. By speaking their own individual truths and rejecting the lies of others, users can easily and cheaply pronounce that invalid blocks need not apply.

Likewise, miners are free to run the numbers on their end, providing public protection via a perfect competition that only requires thinking and speaking—or, in other words: electricity and a communications channel—to enter. Miners are rewarded with a currency that is internal to the network, which aligns incentives and makes the relationship symbiotic.

In other words: the security of the public record depends on the value of the sats that are held in private, and the value of the sats depends—at least in part—on the security guarantees of the public record and the confidence in the integrity of its past and future.

To disrupt this ongoing game in any meaningful sense, you have to overwhelm all honest players by expending resources only useful in the game itself. It is way more profitable to protect the system and its rules: honest play is rewarded, dishonest play is not. Further, any disruption will devalue the sats that are used to repay those who play the game. In addition to all of that, if a motivated attacker continues to disrupt the play for prolonged periods of time, there is always the chance of a large-scale user revolt, as has happened in the past. Users are free to change the rules ever so slightly—via a user-activated soft-fork, for example—which provides an additional layer of protection against disruption. Any dishonest player thus always runs the risk of losing out on rewards completely. Just like the mathematical binding that makes any guessing of Bitcoin's private information unfeasible, this economic binding makes any corruption of Bitcoin's public information unprofitable.

Because of this, Bitcoin can be understood as "vitrium flexile," to use a mythical reference. The glass of Roman legend—a transparent substance that is virtually indestructible. Bitcoin creates a global vault made of this substance, and because it can only protect its native asset, it is as if this glass vault would empty itself as soon as someone tried to break the glass.

Ten-tenths of the Law

The whole point of Bitcoin is to remove humans from the issuance and control of money. As Szabo put it: "[Bitcoin] implements data integrity via computer science rather than via 'call the cops'". Nobody can help you if you ~~lose~~ forget your private key. Nobody can reverse a transaction once it is confirmed and buried beneath a couple of blocks. It doesn't matter who you call.

We all know the saying that possession is nine-tenths of the law. Bitcoin, however, is binary. In Bitcoin, possession is ten-tenths of the law. And it is not possession in the ordinary sense.

A private key is information, which means that possession is knowledge—secret knowledge. In that sense, "owning" bitcoin is knowing a secret. This fact is why you can hold bitcoin in your head. In Bitcoin, "owning" is knowing.

However, "ownership" alone is not enough. You also need the corresponding public information that makes your secret phrase useful. After all, a magic spell is only useful if it changes something in the real world, something that everyone can verify with their own eyes. In Bitcoin, this is the public ledger: the verifiable record of who "owns" what.

Technically speaking, your private key allows you to spend UTXOs, which are basically the sats in your wallet. The secret you know allows you to craft a magic spell—a transaction—that will transfer your sats to someone else (or yourself).

It is this interplay of public and private information that defines ownership and property rights in Bitcoin, and it is the interplay of miners, nodes, and holders that is responsible for the enforcement of said rights. And because you yourself will always be able to hold your own key, run your own node, and calculate your own hashes, you will always be able to be self-sovereign.

You yourself can be judge, jury, and executioner in Bitcoin. Your rules dictate which transactions are valid and which are not. Your private key is all that's needed to create a valid transaction. Your node is all that's needed to validate said transactions. Your miner has the power to preserve the past. In Bitcoin, you truly are sovereign.

Cryptosovereignty through Cryptoeconomics

Because bitcoin is digital money without any central authority, enforcement has to happen via cryptography and the cost of breaking cryptography. We do not have the luxury of making use of various efficiencies that central authorities bring: removing central authority is the whole point.

As mentioned previously, authority is removed via an asymmetry in cost. Cryptography makes it possible to create barriers that can not be violated by force. Such a barrier does not exist in the physical domain; it only exists in the informational domain: in the realm of ideas.

Allow me to repeat an important point: Bitcoin is a cryptoeconomic system, so we have to differentiate between two types of asymmetries: cryptographic ones and economic ones.

Your private information is secured by secrecy and strong cryptography. Your public information is secured by sunk costs and the incentives to be reimbursed for said costs. The first security guarantee is mathematical; the second is economic.¹⁵

Both are rooted in the physical limits of computation. Both massively favor the defender, which is why—if you are absolutely hell-bent on using combat language—bitcoin is a shield, not a sword. It is indestructible bulletproof glass, not a gun.

With cryptography in the digital domain there is an impenetrable asymmetric defense advantage. It's like everyone is walking around with a nuke proof personal force field.

Adam Back

Your private key is secure because no amount of compute will ever be able to guess it. It's about physics, not technology, as Bruce Schneier pointed out: "These numbers have nothing to do with the technology of the devices; they are the maximums that thermodynamics will allow. And they strongly imply that brute-force attacks against 256-bit keys will be infeasible until computers are built from something other than matter and occupy something other than space."

Your UTXOs are secure because it takes an economically unfeasible amount of compute to change the past that brings said UTXOs into existence.

All of Bitcoin's security is rooted in the fact that computation requires energy. The mathematical binding that protects Bitcoin's private keys is just way stronger than the economic binding that protects Bitcoin's public ledger, but it is very similar in nature. The main difference is that we can't rely on the "absolute" security that private keys would bring because we don't have the luxury of referring to a quorum that would hold this private information. We have to rely on game theory and economics.

The game-theoretical aspects of Bitcoin are probably the hardest to understand because there is no way to have absolute proof of any security guarantee in the future. It is impossible to say how thick the shield has to be, to stick with the previous metaphor. We can not know how much effort a dishonest player is willing to muster. And, as long as the game can be played anonymously, all a dishonest player can do is make moves in the game itself: by speaking words, by providing information to other players.

Non-Violent Play

Here is the real innovation that Bitcoin brings: Nakamoto Consensus allows us to settle disputes without the threat of violence. Disputes are settled via a probabilistic game, a game of words and math, with multiple parties competing in their own self-interest. Once the dispute is settled—buried under a few blocks of provably rare information—it is settled for good.

We can rely on the eventual settlement of disputes because of probabilities and determinism: random selection and deterministic computation.

Computation, like thinking, requires energy. While the game might be abstract, the electrons are not. To play the Bitcoin game at any meaningful speed and scale, electricity and specialized equipment have to be used. This is no different than TCP/IP, one of the base protocols of the internet. We could run TCP/IP on carrier pigeons—there is even an official specification for that—but for the sake of efficiency, we use computers and high-speed communication networks. The same is true for LNP/BP—the Lightning Network Protocol, and the Bitcoin Protocol. We could use pen and paper to play the game, but it wouldn't be very efficient or very useful.

While the physical infrastructure that is used to play Bitcoin more efficiently is prone to violent attacks, the essence of Bitcoin and the data it produces are not. Bitcoin is code. Bitcoin is speech. Bitcoin is text. As are all private keys and the public ledger that defines the UTXO set.

Once the players have hashed it out—pun intended—the potential for violence quickly moves to the background. The one-way street of Bitcoin's difficulty-adjusted proof-of-work transmutes kinetic energy into intersubjective assurances that are valued by individuals, assurances that exclusively reside in the domain of information.

Bitcoin's proof-of-work serves as a bridge between the world of atoms and the realm of information. This bridge can be built in one way and one way only: by coming up with information that is so unique, so preposterously unlikely, that certain things had to happen in the real world for this information to appear. The rules of the game and the nature of physical law allow for no other possibility.

Because the information speaks for itself, once a valid block is found, we move from the domain of violence to the domain of ideas. The work is done, the word has been spoken, and as soon as this information propagates to other players, the cat is out of the bag. Flesh became Word, and words—like ideas—are bulletproof.

It is this transformation, the "reification of information," as waxwing calls it, that makes bitcoin an inalienable right. You can hold sats in your head if you manage to memorize 12 words. You can play bitcoin with pen and paper if you are so inclined. Every aspect of Bitcoin can be transformed into speech.

Because Bitcoin is speech, participating in and holding Bitcoin is exercising your God-given right to speak and think. The fact that you are using a Turing machine connected to a digital communications network to speak and think more efficiently doesn't matter. It is all text, all the time—communication, not violence.

Others have written about the nuances and implications of the above at length, most notably Erik Cason and Eric Voskuil. I recommend reading their respective works—Cryptosovereignty & Cryptoeconomics —in full if you want to understand said nuances and implications deeply.

The code alone is sovereign. There is no exception.

Erik Cason

Bitcoin provides an automated framework for trust-minimized, digital money. It defines the rules of the game and makes changing these rules incredibly hard because new rules have to be backward-compatible and adopted voluntarily by its users.

No central authority dictates the rules. You learn the rules, and you either agree to play the game or you don't. Wherever two people meet that play according to the same rules, the game can be played. What differentiates play from other things—war, for example—is that play is voluntary. You have to agree to it. Nobody can force you to play a game that you don't want to play.

The fact that Bitcoin is a game of language is equally important. Speaking does not infringe on anyone else's rights. In a free society, you should be able to speak freely. In a free society, nobody should be able to force you to speak or dictate what you say. Even when living under tyranny, nobody can force you to think certain thoughts or take them away from you. "Thoughts are free," as the German folk song goes. "No person can know them, no hunter can shoot them."

Your browser doesn't support HTML5 video. Here is a link to the video instead.

Consequently, the rights and freedoms granted to you by Bitcoin are independent of the rights and freedoms granted by the state. Bitcoin embodies your natural rights; it does not grant you legal rights. The part that is hard to grasp is the Gordian knot of interlocking incentives and cryptography that makes up the judge, jury, and executioner of the Bitcoin network. When push comes to shove, there is no authority: it's all you. You can be your own judge, jury, and executioner if you are so inclined.

That's why "21 million" is sacrosanct. It is sacrosanct to me, and I will continue to play this game according to the rules that bring 21 million into existence. I will refuse to play by any rules that would lead to a change of this limit, just like I will refuse to play chess on any board that is larger or smaller than 8x8 squares. When someone knocks at my door and forces me to change the consensus parameters of my Bitcoin node, I will refuse. And if someone else is as stubborn as I am—given that we have a way to communicate—the Bitcoin network will exist.

This, finally, brings me to the last bend of the Gordian knot that speaks Bitcoin's freedoms into existence: responsibility.

Responsibility

Freedom makes a huge requirement of every human being. With freedom comes responsibility.

Eleanor Roosevelt

I see it as my responsibility to exercise these inalienable rights and stand for the values that Bitcoin embodies. "Running the numbers is not a crime," as a good friend of mine once remarked. It is my responsibility to hold my own keys and run my own node. It is my responsibility to know the rules. It is my responsibility to accept or refuse changes. It is my responsibility to exercise my right to free speech and free thought. It is my responsibility to buy and hold bitcoin, to use it, to imbue it with value.

The freedoms that Bitcoin grants me—the freedom to transact, the freedom to save, the freedom to remain private—are a consequence of sovereign individuals all over the world likewise shouldering these responsibilities, voluntarily. They might do it out of necessity, or out of economic self-interest, or because they simply believe that it is the right thing to do; but they all do it because they accept the rules and believe that the Bitcoin game is a worthwhile game to be played. They all agree that Bitcoin is valuable.

I want to emphasize again that Bitcoin is all text, all the time. Consequently, it is a game of thought and speech, and thus you don't need anyone's permission to play it. By holding your own keys and running your own node, you exercise your natural right to think (do math) and speak (broadcast information). It is a game that is most beneficial when played with others, but other players are not strictly necessary. I can play it alone, just like Satoshi did when he ran the first Bitcoin node. Playing alone is neither fun nor very useful, but it is and always will be possible. And as soon as a communication channel exists, a second player can join.

In Bitcoin, the individual is sovereign. By shouldering these responsibilities, you, the sovereign individual, are saying: "My thoughts are mine and mine alone. I will speak freely, about whatever I want and with whom I please. It is my God-given right to protect myself; I will not be stolen from."

Consequently, the enemies of Bitcoin are enemies of freedom and sovereignty. They are saying: "I don't want you to have these rights. I don't want you to speak freely. I don't want you to use your capacity to think about whatever you want. I don't want you to have the freedoms that this language game bestows upon you. I don't want you to transact freely. I don't want you to protect your savings."

Yes, governments can pass laws that outlaw the use of Bitcoin. However, Bitcoin works the way it works precisely because such a ban is anticipated, not feared. Bitcoin nodes send and receive messages, as do miners. The fact that some of these messages are hard to craft is a feature, not a bug. It is individuals that give these messages value; individuals that have 12 words stored somewhere; individuals that believe in the core value of Bitcoin in the first place: financial freedom and the separation of money and state.

Conclusion

Law, Language, and Money. Out of these three, only law and language were allowed to evolve, as Hayek pointed out. The money was captured, by banks and the state alike. It is this capture that is at the root of all monetary evil. A capture too profitable to ever give up.

Because of this capture, Satoshi knew that he could not ask for permission to evolve the money. He had to find a roundabout way that uses language to speak the Hayekian dream of a stateless money into existence. A money that creates and enforces its own set of laws:

You shall not confiscate.
You shall not censor.
You shall not inflate.
You shall not counterfeit.

This is the essence of the laws of Bitcoin, a global and neutral money accessible to all. Anyone can enforce these laws through speaking and listening with their nodes: accepting valid messages and rejecting those that break the rules. Anyone can contribute to the cumulative shield that protects Bitcoin's past. Anyone can craft transactions and run the numbers that define the future. All that's needed is a way to do the math and a way to communicate with others.

Anyone can play according to their own set of rules. It is overlap and agreement that makes Bitcoin's rules, not authority.

Thanks to Bitcoin, anyone can use the asymmetric defenses of cryptography to their economic advantage. Asymmetry is at the heart of Bitcoin's security: hard to guess, easy to verify. Cooperation is rewarded; conflict is not. Your keys are private; the ledger is public. Defense is cheap; disruption is incredibly costly.

It is the asymmetry in cost that gives rise to the cryptoeconomical game theory of Bitcoin. Peaceful and voluntary cooperation; mutually assured preservation. Sovereignty through cryptography.

Law, Language, and Money. A healthy trifecta of these three is absolutely essential for a free society to flourish. If freedom is a value you hold in high regard, this translates to (1) free speech, (2) sound money, and (3) individual property rights. Bitcoin uses (1) to create (2) and enforce (3)—without the necessity of violence. After all, no amount of violence will ever solve a math problem, as Jacob Appelbaum said so beautifully.

We, as a society, are responsible for upholding the sacredness of free speech. You, as an individual, are responsible for exercising this freedom and taking it seriously. In the realm of Bitcoin, this translates to holding your own keys, running your own node, and doing your own proof-of-work.

We don't need a separate "right to send a transaction." It is an inalienable right in a free society, a society that takes free speech seriously. We don't need a law that will allow us to use electricity to do math more efficiently. After all, mining is nothing but an automated way of trying to find a matching random number efficiently. We don't need a separate "right to have a wallet." A wallet is nothing but a comfortable way to sign a message—a calculator if you will. We don't need a separate law that allows you to hold bitcoin. You are a free individual. You have the inalienable right to memorize 12 words in your head.

Nothing of the above should ever be illegal. In a free society, a society that holds certain truths to be self-evident, none of the above should ever be outlawed. If the course of human history has yielded any fundamental insights for the optimization of human flourishing, it is that speech, and the free exercise thereof, is sacred. The Logos is sacred because the ability to speak freely is the fundamental prerequisite for the discovery and communication of Truth itself, the place from which all goodness emanates.

If speech and the free exercise thereof is sacred, then Bitcoin is sacred, because all that Bitcoin requires of you is to think and to speak. Anyone is free to participate in this game of words and numbers; a game that embodies answers to various questions of ethics and morality; a game that is played without an ultimate end, but with absolute limitation: 21 million, never more. It is you that brings this limitation into existence: by shouldering the responsibility of running the numbers, by exercising your inalienable right to think and to speak. And through that, absolute Truth emerges—without the need to spill a single drop of blood.

This essay is an amalgamation of multiple chapters of my upcoming book 21 Ways. Like my first book, it will be published under a permissive license. You can support me in writing it.

Acknowledgments

Thanks to John, Max, Erik, Mr. Hodl, and my patrons for their valuable feedback on earlier drafts of this essay.

Hayek, F. A. (2009). Denationalisation of money: the argument refined. Ludwig von Mises Institute. ↩
This injustice is called the 'Cantillion Effect' and is especially pronounced in fiat money because fiat money can be printed out of thin air. For monies like gold or bitcoin, there is no free lunch since the money is not made up. One has to dig it out of the ground. The fact that this ground is mathematical, as is the case with Bitcoin, doesn't matter much. If you have to perform work to find new units, the money is not fiat money. ↩
Jörg Guido Hülsmann, The Ethics of Money Production ↩
Nick Szabo, Money, Blockchains, and Social Scalability ↩
This includes gifts since you are trading your gift for reciprocity, karma, a friendly society, or similar ideas. See Hülsmann, Graeber. ↩
Warmke, C. (2021). What is bitcoin?. Inquiry, 1-43. ↩
Beautyon (2018). Why America Can’t Regulate Bitcoin ↩
Funnily enough, the encoding problem—the disconnect between the real world and the world of information—is at the root of the problem of digital money. Bitcoin solves this problem via its difficulty-adjusted proof-of-work algorithm, which, I believe, is the only way this problem can be solved. In Bitcoin, the map is the territory. ↩
Wikipedia contributors. (2022, March 23). Gödel numbering. In Wikipedia, The Free Encyclopedia. Retrieved at 730,136 ↩
Jonathan Bier (2021), The Blocksize War ↩
James P. Carse (1987), Finite and Infinite Games ↩
Shout-out to bitstein for sharing his view on Bitcoin governance. ↩
Noded 78, 32:50 ↩
"It would have been nice to get this attention in any other context. WikiLeaks has kicked the hornet's nest, and the swarm is headed towards us." —Satoshi Nakamoto ↩
Of course, even though the relationship between a private key and a public key is mathematical, trying to crack this relationship is again a problem of cost. But it is so outrageously difficult to get a private key from a public key that it is not only uneconomical, it is virtually impossible. ↩

The Egg of the Phoenix

Sat, 19 Feb 2022 00:00:00 +0000

You’ve heard it before: "Bitcoin fixes this."

It sounds like a joke at first. An off-hand comment uttered by a complete fool, by someone who is at least partly delusional. Surely, bitcoin doesn't fix this? Right?

Many idioms are like that: borderline nonsensical, outrageous, not to be taken literally. "Jesus died for our sins." "Live and let live." "Fix the money, fix the world."

It's all gibberish. The people who say this stuff aren't actually serious, are they? Surely, it can't be true in a literal sense, right?

Consequently, you don't take it—or them—too seriously.¹ You don't think twice about it. You don't entertain the possibility of what it could mean or why it could be true.

However, the truth has a way of creeping up on you. And then, one day, suddenly, it hits you: Bitcoin fixes this. Actually, truly, once and for all.

Tyranny

Tyranny. It's creeping up again. If we aren't careful, it will be ubiquitous, global, and all-encompassing. Our capacity to yield power and bring about destruction is almost endless; our wisdom is anything but. While the end has always been near, I do believe that it truly is different this time, if just a bit. Our ancestors didn't have the technology to eradicate or enslave all of humanity forever.² In the words of Robert Oppenheimer: "I am become death, the destroyer of worlds."

In addition to that, Orwell's imaginary boot has been built, and in some corners of the world, it is stamping on human faces already. China is the obvious example: social credit scores, total surveillance, authoritarian rule. But also, the supposedly "free world" is not immune. What is currently happening in Canada is a glimpse of what can happen to anyone in the legacy system at all times, anywhere on earth. Join the wrong Facebook³ group? A visit by the police is in order. Like the wrong tweet? Gone is your bank account, gone is your insurance, gone is your credit score. And with it, gone is your ability to participate in society. Send money to a peaceful protest? Congratulations, you are no longer a citizen. You are now a terrorist.

Your browser doesn't support HTML5 video. Here is a link to the video instead.

This is the world we are already living in, yet most people are still too preoccupied with trivialities, too blinded by politics, and too comfortable to care.

I would love to tell you that "bitcoin fixes this"—magically, on its own. It doesn’t. It all depends on you.

It's All You

There is no magic solution. Yes, Bitcoin is Magic Internet Money, but it doesn't work magically on its own. It is you that has to participate. It is you that has to care. It is you that has to make use of it. It is you that has to stand up, do the work, use the tools, and defend yourself from those who want to control, deplatform, cancel, and rob you.

You can defend yourself from tyranny, right here, right now. But you have to put in the work, and you have to do it yourself. I can't do the work for you, and, quite obviously, I can't convince you of the necessity to do so. You can only convince yourself.

I can only show you the door. You're the one that has to walk through it.

Morpheus

This is true for many things, but it is especially true for bitcoin. Bitcoin held by others is not your bitcoin. Bitcoin verified by others is not your bitcoin. You have to take ownership. You have to take responsibility. You have to become one with the network. You have to care; you have to decide; you have to believe. You have to form your own opinions of what bitcoin is and what it might be in the future. You have to be involved.

There are no shortcuts.

Participatory Knowing

There is no easy way to explain all of the above to someone. You have to experience it, yourself, for real, with actual skin in the game. You have to go through the motion of setting up a wallet, holding your own keys, making backups, recovering from those backups, and so on. You have to understand some of the nuances of what Bitcoin is and how it works, not only to understand what you possess—but also to understand the power that Bitcoin bestows upon you.

You have to understand beyond the intellectual. You have to participate. You have to feel what it means.

Then, and only then, will you begin to understand why and how "bitcoin fixes this." I don't believe that this realization can come without experience. The absolute knowledge that your bitcoin is yours and yours alone—a deep understanding that nobody can forcefully take sats away from you—has to be experienced to be understood. Once you cross a border with your net worth in your head—realizing that all your wealth is contained in these words directly—then, finally, will you begin to understand the extent and the profundity of it all.

And with it, you will be transformed. And with you, the world.

Out Of Chaos, Order

There are rough times ahead of us, no doubt about it. And yet I am hopeful. In the midst of all the chaos, it is easy to forget that there is always hope, and love, and beauty, and the Good. It is easy to forget that chaos is required for order to emerge.

Do not forget that we have truth on our side, and love, and responsibility. I mean all of these things literally, as literal as when I say "bitcoin fixes this" when responding to many a problem of this world.

Truth: Bitcoin is the most truthful artifact we have ever had. It can not lie to you. Its records are indisputable, especially the farther back in time you go.
Love: Bitcoin is opt-in. It will never force you to use it. All interactions are completely voluntary. It does not coerce. It is open, transparent, and welcoming to all. Always.
Responsibility: Bitcoin puts the responsibility upon you, the individual. But it is also responsible in itself: no waste, no unnecessary parts, no leakage. A closed-loop monetary base of 21 million, never more. No irresponsible bailouts. No handouts to the well-connected. No favors, for no one, ever. Everyone is equal in the eyes of Bitcoin.

We are past the "laugh at you" stage now. It was clear from the beginning that if Bitcoin grew big enough, peacetime would come to an end, and the powers that be would try to squash it like the annoying mosquito they think it is. What they don't understand, however, is that Bitcoin is a different kind of organism. And you, dear bitcoiners, are a crucial part of it. Arm yourselves; with knowledge and freedom-enabling tools alike.

In all matters, before beginning, a diligent preparation should be made.

Cicero, De Officiis (44 B.C.), I. 21

Going Forward

Bitcoin is a tool that empowers the individual when used properly. Proper use requires education, understanding, care, and participation. If you are reading this, you probably care enough already. Educate yourself, and if you can, educate others.

Again: there are no easy solutions. I can't recommend one single article, one book, or one 5-step guide that is one-size-fits-all. You have to care enough to figure out what works for you, what works for your friends, your family, your loved ones, your community, and so on.

That being said, I refer to the following resources often:

If you just got de-banked, bankaccountfrozen.com might be for you. Make sure to read the caveats.

Do not blindly trust me or anyone else. Improve your own skills and understanding. Think for yourself. Make decisions accordingly.

Odell

May freedom arise like a phoenix out of the ashes.

Godspeed, and good luck to you all.
We're going to need it.

This is good, as far as I'm concerned. All of it is too serious to be taken too seriously. ↩
At least as far as we know. ↩
https://archive.is/coBob ↩
Disclosure: bitcoin-resources.com is mostly curated by myself. ↩

The Freedom of Value

Thu, 30 Dec 2021 00:00:00 +0000

The internet has a problem. Few people know that this problem exists, but hey, that's the nature of serious, non-obvious problems: they are invisible until they aren't. The problem with the internet is that information wants to be free. And if something wants to be free as in freedom, given enough time, it will also be free as in beer.

Let me explain.

Poisoning the Air

We consume untold amounts of data every day. Every second of every minute, bits and bytes are streaming through the series of tubes that we all know and love: the internet. We take it for granted, and most of us take the current monetization model—as well as all the ills that come along with it—for granted as well. We seldom stop and think about the strange world of bits and bytes. How wonderful it all is, but also how alien. How it already has transformed our lives, and how it will continue to transform our future. Where do the zeroes and ones come from? What makes it all work? And, most importantly: who is paying for it?

The bits and bytes that are zipping through our fiber-optic cables are as invisible as the air we breathe. That's not a terrible metaphor, now that I think of it. As long as we have no trouble breathing, we don't need to stop and inspect every single molecule we inhale. Similarly, as long as we don't have too much trouble creating and consuming digital content, we don't need to stop and inspect all the various parts that make our attention economy work.

Attention economy. What a fitting description. As we should all know by now, the stuff we consume isn't free; we are paying dearly for it: with our attention, among other things.

Paying Attention

In the high-velocity world of today, to maximize profits, you have to maximize attention. But it is a peculiar, shallow kind of attention. It is not the focused kind of attention that deep thought and meaningful conversations would require. I believe that this is, at least in part, why many things are so broken. Why our societal discourse is so fragmented, our politics so polarized, we so paralyzed, and our analysis often as shallow as our desires.

The attention economy has us neatly segregated into echo chambers of personal truths. Ironically, the only truth worth pursuing in the attention economy is how to keep the maximum amount of people maximally outraged for the maximum amount of time. All while keeping participants unaware that they are trapped in an algorithmic prison of their own choosing.

You Are The Product

The idiom "if something is free, you are the product" can't be repeated often enough. For one reason or another, we expect most things to be "free" online. Of course, there's no such thing as a free lunch. In the case of online services, your data is harvested and sold to the highest bidder, which is usually an advertisement- or government agency. Or both.

Not only do all big data companies spy on you, but they will also use a multitude of dark patterns and unethical practices to squeeze out every last drop of data from your interactions. Whether it is the Facebook Pixel, Google Analytics, or something else doesn't matter. You are being tracked, surveilled, and cataloged. What you see, for how long, at what times, how frequently, and what you'll see next is carefully orchestrated by a profit-maximizing algorithm. Profit for the platform, not for you.

Of course, the idea is usually that everyone profits: users, creators, advertisers, and the platforms alike. However, the evolutionary environment that is set up by said incentive structures will often select for shallow, attention-grabbing, and sensationalist snippets. As of this writing—block 716,025—the epitome of such an environment is TikTok, a video-based dopamine machine that will show you the motion picture equivalent of heroin mixed with crack cocaine. Hard drugs for the mind, custom-tailored to your particular likings. A truly cursed app. Unfortunately, most platforms of this nature are just different in degree, not in kind.

Allowed Opinion

"It isn't so bad," we say to ourselves. "Look at all the useful information!" we exclaim as we scroll through our feeds, inadvertently feeding the machine that is feeding us dopamine hits in return.

But make no mistake: the companies in charge are not in the business of feeding us useful (or truthful) information. They are in the business of tricking us into feeding the machine.

How could it be otherwise? You are what you track, and you become what you optimize for. From the platform's perspective, this is clicks, not quality. At first, maximizing clicks and watch time might be an innocuous thing. After all, you have to make money to survive. It's just one ad. How bad can it get?

Unfortunately, the problems that come with it all are invisible at first. Just like cancer is invisible to the smoker who just smoked his first cigarette and liver cirrhosis is invisible to the drinker who just had his first drink, deplatforming, censorship, polarization, and manipulation of public opinion are invisible to the prosumer who just saw his first ad in a walled-garden ecosystem. We can probably agree that we are past the first inning when it comes to these issues. Censorship is the norm, deplatforming is cheered on, polarization is at an all-time high, and public opinion is manipulated manually and algorithmically like never before.

The consensus is that you are too stupid to know what is good for you and your public opinion is too outrageous to be voiced publicly. Even worse, it shouldn't be your opinion in the first place. "Here is why you're wrong. Here is a source pointing to an allowed opinion. Here are some experts that agree with us. Our smart and helpful algorithms did all the thinking for you and they are never wrong. Neither are the experts."

This is the world we are already living in. You are not allowed to speak freely. You are not allowed to think freely. You are not allowed to express yourself freely. Your picture is offensive; thus, it has to be removed. Your meme is too close to the truth or too criminally funny; thus, we have to put you in Twitter jail for a week or two. You are saying something that we don't agree with; thus, we have to ban you for life—even if you are a sitting president, mind you. You have said the wrong word in a video or played a copyrighted song in the background; thus, we have to take away your income. You have posted a picture of yourself without a mask; thus, we'll have to ban you and report you to the authorities.¹

The fact that the sentence above is not purely in the realm of dystopian science fiction anymore should have everyone worried. Removed from cyberspace for wanting to breathe free. Strange times.

Evolutionary Pressure

How did it come to this? If I were forced to give a short answer, I would give the following: We moved from protocols to platforms, and platforms are only as good as their incentives.

The incentive structure of the platforms we inhabit is the evolutionary environment that dictates survival. Everything that wants to survive has to align with it.

Of course, this is true in all areas of business. Pick print magazines, for example. For very human evolutionary reasons, if your magazine doesn't sport a beautiful female face on the front cover, it won't be bought as much as those who do. Thus, it won't be able to replicate itself and, consequently, will die. Similarly, if your online news outlet does not generate enough ad revenue, it will fail to replicate and die. This is why every magazine has a beautiful female face on the cover. And this is why every ad-based online news outlet devolves into clickbait.

One of these faces is not like the others.

Similarly, this is why feed-based recommendation engines devolve into slot machines for your dopamine receptors. The longer you stay glued to your screen, the more ads you will see, the more revenue will be generated for the platform. This is also why most YouTube channels devolve into 7-15 minute snippets with thumbnails that portray the face of someone who just stepped on a piece of Legos. Short enough to convince you to watch it, long enough to make you forget what video you wanted to watch in the first place. Like rats pushing buttons in hyper-personalized Skinner boxes, we are conditioned into addiction cycles to maximize shareholder profits.

Maximizing Profits

Platforms are companies, and companies are incentivized to maximize shareholder profits. There is nothing wrong with profits, and there is nothing wrong with shareholders. However, I believe that the information revolution we find ourselves in has split the evolutionary landscape into two. Let's call these landscapes "broad" and "narrow."

To maximize profits via broad advertisements, controversies and extreme opinions have to be minimized. Thus, just by catering to the lowest common denominator, politics and censorship immediately enter the picture. Conversely, if profits are made via narrow, targeted advertisements, controversies and extreme opinions have to be maximized. Thus, just by showing different pieces of information to different sub-groups, polarization and fragmentation are continually increased.

Mainstream Cohesion vs. Algorithmic Division.

These two extremes are two sides of the same coin. It might seem like it is Cable TV vs. the algorithmic news feed, but it actually is two different approaches pursuing the same goal: to keep as many people glued to the screen, so they watch more advertisements. The first is a sedative, the second a stimulant.

Granted, the above characterization might be an exaggeration, but the problem remains: if we aren't paying for something directly, we will be paying for it indirectly, one way or another. Always.

The point is the following: free speech platforms can not exist. Only free speech protocols can exist. If someone can control what is being said, someone will control what is being said. If you can monitor, filter, and censor content, you will monitor, filter, and censor content.

All platforms will run into this problem, no matter how pristine their intentions. Even if you position yourself as a free speech platform at first, you will be forced to step in and censor in the long run. After all, if you can be squashed by the state for content you host or transmit, you will be squashed by the state for content you host or transmit.

Self-Censorship

However, long before state censorship will rear its ugly head, the chilling effect of self-censorship will be felt. If others are deplatformed and demonetized for voicing certain opinions, most people will be very careful to voice said opinions. Consciously and subconsciously, we slowly silence ourselves.

When it comes to self-censorship, advertisements have a role to play too.

After all, you wouldn't bite the hand that feeds you, would you? In the worst case, advertisers and executives will tell you what can be said and what is off-limits. They will tell you what opinions are inside the Overton window and which ones are outside of it. And if they don't, you will make an educated guess and adjust what you say accordingly.

A Problem and a Paradox

Back to the original problem: why can't we sell information like a regular good? Why does the simplistic approach—putting content behind a paywall—produce such bad results? I believe there are two reasons, which I will call the "MTX problem" and the "DRM paradox."

The MTX problem, with MTX being short for "mental transaction," refers to the problem of irreducible mental transaction costs inherent to every transaction. Every time you hit a paywall, you have to make a conscious decision: "Do I want to pay for that?"

As Szabo convincingly argues, most of the time, especially if the cost is tiny, the answer will be no. This is not for any technical reason but for psychological reasons. It turns out that the hassle of figuring out whether this transaction is worth it or not—a process that is happening in your head—is simply too much. If you have to think about a micro-purchase, the chance that you will make said purchase diminishes drastically. This is why flat rates and subscriptions are king: you only have to think about them once.

For the smallest of micro-transactions, this is even true from a strictly economic standpoint. Using an hourly wage of $20 USD, thinking, "Is this worth 21 sats?" for two seconds will cost you a little over 1¢, which is more than the price of the microtransaction in question.² It is unfeasible, both psychologically and economically. This, in a nutshell, is the MTX problem.

But this isn't the only thing that is plaguing the monetization of digital content. As mentioned above, there is also the DRM paradox.

DRM, short for "digital rights management," is a futile effort that tries to prevent information from being copied. It should go without saying that non-copyable information is an oxymoron, but, alas, in the age of NFTs and plenty of other nonsense, I'm afraid this needs to be spelled out explicitly. So, let me spell it out for you: You can not create information that can't be copied. Period. Or, in the words of Bruce Schneier: "trying to make digital files uncopyable is like trying to make water not wet."

The nature of information is such that if it can be read, it can also be copied—with perfect fidelity. No amount of trickery or artificial restrictions will change this fact. This is why digital artifacts such as movies and music will always be available for free. It is trivial for someone who has access to said artifacts to copy said artifact—at near-zero marginal cost, mind you—and make it accessible to others. Thus, given enough time and popularity, every movie, every song, and every document will be available to the general public for free. The nature of information does not allow for another outcome. Hence the saying: information wants to be free.

Although trying to create something that can't exist—information that can't be copied—is paradoxical in itself, this isn't what I mean by the DRM paradox. What I mean is something more hilarious. It is again psychological, not technical in nature. The paradox is this: content will only stay behind a paywall if it is shitty. If it's good, someone will set it free.

We all know this. If an article is actually worth reading, someone who is behind the paywall will screenshot it and post it to social media. If the movie is worth watching, it will be available on various websites that have pirate ships as their logos. If the song is worth listening to, it will be available on streaming sites for free. It is only the terrible articles, the most obscure movies, and the songs that make your ears bleed that stay locked behind paywalls. Hence, the paradox: content will only stay locked behind paywalls if it sucks. If it's good, it will be set free.

Personally, I believe that the MTX problem is a bigger deal than the DRM paradox. The traditional solution to the MTX problem is the subscription model, à la Netflix, Spotify, Amazon, and so on. The DRM paradox still remains, but it turns out that this is not an issue if you make the "legitimate" access to information convenient enough.

The opportunity cost of downloading, storing, maintaining, and curating a private collection of songs is simply too high for most people. The more convenient solution is to pay for the damn Spotify subscription.

That being said, we can already see one of the problems inherent in the subscription model. The following comic describes it well:

Comic by /u/Hoppy_Doodle

The proliferation of streaming platforms forces you to get a Netflix subscription, an Amazon Prime subscription, a Hulu subscription, a Disney Plus subscription, a YouTube Premium subscription, and so on. And that was just streaming video. The same subscription zoo exists for music, books, games, newsletters, blog posts, etc.

So, what is the solution?

Accept the Nature of Information

The solution begins with acceptance. Selling digital content in the traditional, transactional way doesn't work, or at least doesn't work very well. A transaction involving a digital photograph of an apple is very different than a transaction involving a physical apple.

George Bernard Shaw said it best: "If you have an apple and I have an apple and we exchange these 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."

Because digital information behaves like an idea, there is no reason to make it artificially scarce. This is not only true philosophically, but technically, too. Computers are copying machines. Always have been, always will be. The only way to move information from one machine to another is to copy it. This alone should make the futility of treating information as physical objects blatantly obvious.

When it comes to monetizing information on the open web, we have to align our ways of thinking with the nature of information. As outlined above, information is non-scarce, easily copied, easily modified, and wants to be free.

I believe that the right monetization model has to respect these values and needs to have similar properties. It has to be open, transparent, extensible, and, last but not least, completely voluntary.

This model has a name: value-for-value.

Revivifying Busking

The idea is simple but sounds radical: you provide your content for free, for everyone, without access restrictions. If people enjoy it, if people get value out of it, you make it easy for people to give value back.

It might sound outrageous in this day and age, but this model has worked for thousands of years. It is the model of street performers, the model of buskers, the model of voluntary giving. However, in cyberspace, we don't run into the physical limitations of traditional busking. Digital content scales in ways that performances in meatspace never will.

The value-for-value model flips the traditional payment model on its head. Traditionally, enjoyment follows payment. In the value-for-value approach, payment follows enjoyment—voluntarily.

You are free to listen to the street musician and walk on, but—and this is something that the audience intuitively knows—if you want the music to continue, you should throw a couple of coins into the hat.

🎩⚡ Give Value Back

One beautiful thing about this model is that it re-aligns incentives. You are not trying to maximize clicks, or view time, or any other of the countless metrics. You will want to provide value for your audience, and that's it. And if your audience got value out of it, a certain percentage will give back. All you have to do is ask.

A Valuable Alternative

We are at the very beginning of this monumental shift. My hope is that the value-for-value model will continue to emerge as a viable alternative—an alternative to advertisements, censorship, deplatforming, and demonetization.

The value-for-value model removes the "they" from the equation. They filter, they censor, they demonetize, they deplatform. It doesn't even matter who "they" are. If a "they" exists, they will find a way to fuck it up.

Value-for-value removes "they," and puts you in charge. You are the ruler in the kingdom of one, solely responsible for your thoughts and your speech. If we want to have liberation (and salvation) in cyberspace, we need to put the individual in charge once more. As always, freedom and independence require responsibility.

In the best of all worlds, creators are incentivized to do nothing but create. Catering only to themselves and those who are interested in their creations. No intermediaries. Directly, person-to-person, value-for-value.

What Lies Ahead

Granted, as of today, it isn't exactly easy to self-host your infrastructure. It is intimidating to run your own node in order to receive payments in a self-sovereign manner. But, not only will it get easier, increasingly, it will be necessary.

In addition to making it all easier, we need to be cognisant of the MTX problem outlined above. Every step that manages to reduce the mental transaction costs in the value-for-value ecosystem is a step in the right direction.

The value capability of Podcasting 2.0 is such a step. It enables and automates payments by the minute, without any additional interaction required by the user. Once you are set up, your wallet will make payments automatically.

I believe that further iterations of this idea can be integrated into all media types, whether it be audio, video, images, the written word, and so on. I believe that we are close to the protocol version of Patreon: all the benefits of reducing the mental transaction costs to zero, without the friction and the censorship inherent in a platform-based solution. Whether it will come in the form of BOLT12 recurring payments or something else entirely is yet to be seen. I am confident, however, that it will come in time.

Conclusion

Not only is our fiat money broken, but the monetization model of the internet is broken too. The advertisement-based platforms of this day and age optimize for engagement via division and polarization, using dark patterns and addiction by design. It won't be easy to break out of the compulsion loops that are set up for us, but thanks to the self-sovereign tech stack that is currently emerging, there is a viable alternative: the value-for-value model.

The "busking" monetization model has worked for many centuries in the past, and thanks to Bitcoin and the Lightning Network, I am confident that it will work for centuries into the future. We are almost there. We just need to figure out how to position the hat correctly on the ground and where the best places in town are to perform, so to speak.

Value-for-value does away with the DRM paradox in its entirety and - with the right amount of automation and sensible defaults—will solve the MTX problem too. If we get this right, we might be able to free ourselves from the evolutionary survival-of-the-richest environment of platforms, allowing ourselves to step into the quasi-immortal realm of protocols.

There is much to be explored, many tools to be built, and plenty of pre-conceived notions to be shattered. There is a seismic shift happening right in front of our eyes, and I'm looking forward to riding the waves with all of you. Onwards!

Further Resources

Podcast Index and Podcasting 2.0
How to get started: value4value.io

Tyranny

Wed, 08 Dec 2021 00:00:00 +0000

Tyranny comes in many forms. Some tyrannies are more obvious than others. Or, what seems to be the case currently, sometimes tyranny is obvious to some, ignored by most.

I have my suspicions why that is. Maybe it is too dark a thought to entertain. Maybe it is too painful to accept that what is happening is tyrannical. Maybe it is too outrageous to think that it might be orchestrated, at least in part, by forces too dark to ponder. Maybe it is because most people don’t care. Maybe it is because the masses can’t be bothered to think these thoughts, at least as long there is some bread and circuses.

It saddens me deeply that, once again, tyranny is knocking at the door, and most people welcome it in. All in the name of the greater good, of course. Once again, the suffering of the individual is accepted to protect the group. As long as the group is healthy, individual suffering and individual sacrifices are more than acceptable. They are necessary, or so it seems.

A close reading of 20th-century history indicates as nothing else can the horrors that accompany a loss of faith in the idea of the individual. It is only the individual, after all, who suffers. The group does not suffer; only those who compose it. Thus the reality of the individual must be regarded as primary if suffering is to be regarded seriously. Without such a regard there can be no motivation to reduce suffering, and therefore no respite. Instead, the production of individual suffering can, and has, and will be again rationalized and justified for its supposed benefits for the future and the group.

Jordan B. Peterson

We now see world leaders talking about how the health of the group must be protected at all costs. Economically speaking, “at all costs” translates to unlimited sacrifice. Practically speaking, “at all costs” translates to “I don’t care what you think, I don’t care if it makes sense, I don’t care if it’s smart, we are going to do this and there is nothing you can do about it.”

There we have it. The tyranny of a single-minded goal. Perfect health. Perfect safety. Utopia. If we would all just shut up and comply. If we would all just do what is best for the group. If we would all just listen to “the Science (tm),” or the experts, or the politicians, or those who claim to know best.

What happened to listening to your conscience? What happened to common sense? What happened to wisdom?

Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be “cured” against one’s will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.

C.S. Lewis

God is dead, which leaves ample room for people to play God. There it is again. Tyranny. The tyranny of omniscience. The tyranny of omnipresence. The tyranny of omnipotence. We know it all, we can track it all, we can enforce it all. Or so we think.

What is deemed an emergency now will soon go away. What will stay is tyranny.

Magic Internet Money

Tue, 02 Nov 2021 00:00:00 +0000

Any sufficiently advanced technology is indistinguishable from magic.

Arthur C. Clarke

Technology is a marvelous thing. We are so quick to accept things as they stand, rarely taking the time to reflect on how magical these modern miracles are in actuality. Much of what we take for granted today would be indistinguishable from magic to anyone living just a couple of generations ago. Take a smartphone, for example. A pocket-sized piece of glass that can retrieve any piece of information at any time, talk to you, understand you, recognize faces, read fingerprints, record audio and video, and take high-resolution photographs. It is a flashlight, a compass, a navigation system, a notebook, a calendar, a travel planner, and a million other things. It can hold more books than the Great Library of Alexandria and show you more movies than you could ever watch, even if you had hundreds of lifetimes. And now, it can also hold your money and be your bank.

As with all technology, you don’t necessarily need to understand how your smartphone works in order to use it. In the same vein, most people have no idea how an internal combustion engine works, yet they drive their car every day. They might have an approximate understanding—one that is good enough to have some faith in the thing they are using—but it will often remain just that: an approximate understanding. How lacking our knowledge of the inner workings of anything truly is becomes apparent as soon as that thing breaks down. Once the car refuses to start, the computer refuses to boot, or the router refuses to connect, our ignorance is laid bare. What is true for the marvels of the present will also be true for the marvels of the future: you don’t need to understand how everything works to use it successfully.

The best way to become acquainted with technology (or magic, for that matter) is to use it. There is no better way to learn how something works—how it can be useful to you—than hands-on experience. What’s true for cars and smartphones is also true for Bitcoin. It is true for most things in our world, even the most mundane. You probably don’t know every detail of how a lock works, but you know that failing to lock your car or the door to your house might lead to disaster. Similarly, you won’t have to learn all the intricacies of public-key cryptography and hashing functions to understand that mishandling your private keys might lead to disaster as well.

Modern Wizardry

The good thing about bitcoin is that you know exactly the number — the magic number of 21 million.

Garry Kasparov

Bitcoin is a child of the internet. The whitepaper describing it wasn’t published in a scientific journal but freely on the internet. Its software wasn’t created by a gargantuan software company but by a pseudonymous netizen. It wasn’t sold to the public; it was released online for free. Thus, it is quite fitting that Bitcoin’s first viral advertisement was not created by an ad agency but by an individual on the internet.

On February 18, 2013, theymos asked the Bitcoin community on Reddit if they had any ideas for a site-internal Bitcoin ad. An hour later, mavensbot submitted a glorious painting of an incredibly well-drawn and beautiful blue wizard.

The original Bitcoin Wizard

One can only echo the words of ManboobsTheClown: “Perfect.”

The wizard took on a life of his own, conjuring himself onto t-shirts, socks, mugs, paintings, and other artwork. He was drawn and re-drawn many times, and the largest miracle he performed was that his description of Bitcoin stuck: Magic Internet Money.

Internet culture is weird, and arguably, Bitcoin culture is even weirder. This is not particularly surprising since the early adopters of any new system—be it a global communications network or magical cryptographic money that will inevitably uproot the monetary structure of this world—come from the fringes. Just like you had to be a little bit of an oddball to be online in the early days, you had to be a peculiar creature to be interested in Bitcoin in the first couple of years.

While we have truly come a long way from the early days, Bitcoin still is and will always be Magic Internet Money. It is magical, it is internet-y, and it is money. Really good money.

Satoshi Nakamoto: The First Bitcoin Wizard

First rule of magic: Don’t let anyone know your real name. Names have power.

Neil Gaiman

As we have seen in Chapter 1, Bitcoin has a long intellectual pre-history. It didn’t appear out of nowhere. Its creator, however, did. Satoshi Nakamoto first popped on the scene with the announcement of the Bitcoin whitepaper on October 31, 2008. While Satoshi had some private correspondences with select people before that (most notably Adam Back and Wei Dai), the night of Halloween 2008 was when he wrote his first public email to the Cryptography Mailing List.

As he mentions in his writings, he had been working on the design of Bitcoin for over 1.5 years, mulling over the idea of electronic cash (and what transaction types might come in handy) for many years before that.

While little is known about Bitcoin’s pseudonymous creator, many have tried to reveal the identity of the person (or persons) behind Satoshi Nakamoto. So far, all attempts were either horribly misguided, wildly speculative, or both. To this day, all of them were inconclusive.

Probably the most prominent example of such an outing attempt was made by journalist Leah McGrath Goodman who identified Dorian Prentice Satoshi Nakamoto as Bitcoin’s creator. Dorian, a retired engineer who was 64-years old at the time, denied having anything to do with Bitcoin, mentioning that he only heard about it some weeks before the reporter broke the news and turned his life upside-down. After the media hype settled down, the Bitcoin community started to embrace Dorian as a stand-in for the face of Satoshi Nakamoto, producing memes and artwork in the process. The man became somewhat of a meme himself, and if the identity of Satoshi remains a mystery, he might forever be the face of Bitcoin’s inventor.

Portrait of Dorian Nakamoto by Trevor Jones

Over the years, multiple people came forward claiming to be the creator of Bitcoin. Ranging from the obscure to compulsive liars to the mentally challenged, nobody was able to prove that he¹ is Satoshi—a claim that, thanks to public-key cryptography, would be as easy to prove as signing a message with one of Satoshi’s private keys.

Alas, without cryptographic proof, all that remains are outrageous claims and wild speculation. While some people are undoubtedly annoyed that their curiosity in regards to Satoshi’s identity isn’t stilled, I am not saddened by it. To the contrary. The fact that we do not know who Satoshi Nakamoto is is a feature, not a bug. A leaderless system must not have a leader. As Jimmy Song so succinctly remarked, “one of the greatest things that Satoshi did was disappear.”

Apart from his legacy that is Bitcoin, Satoshi left us with a collection of comments and writings that accompanied the code. His many public posts—as well as some private discussions he had with other cryptographers and early adopters of Bitcoin—are still available online. If you are interested in exploring the writings of Satoshi, the following two resources are probably the most complete archives to date: The Complete Satoshi, hosted by the Satoshi Nakamoto Institute, and The Book of Satoshi by Phil Champagne, which includes explanations and historical context in addition to Satoshi’s writings.

These writings allow us to sketch out a timeline of Satoshi’s activities, spanning from his sudden appearance in 2008 to his disappearance in 2010. The following is such a timeline along with important events in Bitcoin’s early history:

Date	Time	Event
2008-08-18		Satoshi registered bitcoin.org
2008-10-31		Publication of the Bitcoin whitepaper
2008-11-09		The Bitcoin project is registered at SourceForge
2009-01-03	0	The Genesis Block is mined
2009-01-08		Version 0.1 is announced and released
2009-01-11		Hal tweets: Running bitcoin
2009-01-12	170	First ever bitcoin transaction. Satoshi sends Hal 10 BTC
2009-01-27	2,016	First difficulty adjustment
2009-10-05		First exchange rate via New Liberty Standard
2009-10-12	24,835	First bitcoin-to-fiat exchange
2009-10-12		Creation of #bitcoin-dev channel on Freenode
2009-12-16		Version 0.2 is released
2010-05-22	57,043	First transaction for a real-world good
2010-07-07		Version 0.3 is released
2010-07-11		Slashdot article on Bitcoin
2010-07-17		Mt. Gox is launched
2010-08-28		Last commit of Satoshi (343328c)
2010-07-14		1st commit by Gavin Andresen (8bd6620)
2010-07-19		Version 0.3.1 released by Gavin Andresen
2010-12-10		First article in a main-stream magazine PC World
2010-12-12	~97,230	Last public message of Satoshi²

So it came to be that after a little over two years, on December 12, 2010, Satoshi disappeared. Some of his final remarks were that “the project is in good hands” and that he had “moved on to other things.” A short time before he vanished, two of the most prominent projects of Bitcoin’s early history were launched: Mt. Gox and Silk Road. Both have magical origins: one used to deal with magic cards, the other with magic mushrooms.

Date	Time	Event
2011-02-27		Silk Road is launched
2011-04-26		Last private correspondence of Satoshi
2011-06-01		Gawker Article on Silk Road
2012-01-15		First appearance of bitcoin in a TV show (The Good Wife)
2012-11-28	210,000	First Halving
2013-10-02	~261,348	Arrest of Ross Ulbricht and consequent shutdown of Silk Road
2013-11-18		First hearing on bitcoin of US Senate
2013-12-05		First China “ban”
2014-02-24		Mt. Gox collapses

Magic Cards: The Mt.Gox Era

Magic: The Gathering is a popular card game played by millions of people around the world. Its playing cards are collectibles: some are rare and expensive (and oftentimes more powerful), others are relatively abundant and cheap. Each round of the game represents a battle between two or more wizards (the players) casting spells and summoning creatures (the cards). The original card game was released in 1993 by Wizards of the Coast, gaining in popularity from 2008 to 2016. Several expansion packs and editions were introduced over the years, including new cards, new game mechanics, and visual redesigns. At its height, the game was played by more than 20 million people, and more than 20 billion cards have been printed, according to the company. In 2002, the game moved to cyberspace with the introduction of Magic: The Gathering Online - the official online version of the card game.

It was this version that led Jed McCaleb to launch Mt. Gox, the “Magic: The Gathering Online eXchange.” What used to be a platform for Magic: The Gathering enthusiasts—a place which allowed you to trade these playing cards like stocks—would turn out to be the catalyst for one of the darkest chapters in Bitcoin’s short history.

McCaleb launched the site in 2007, years before Bitcoin was even a thing. The online marketplace didn’t really gain traction, and after a couple of months, he decided to discontinue the card trading platform. However, after reading about Bitcoin on Slashdot in 2010, he re-launched the site. This time, the focus wasn’t on trading Magic playing cards. This time, the focus was on trading Magic Internet Money.

Being one of the only sites where you could buy bitcoin, Mt. Gox quickly gained in popularity. By 2013 and into 2014, it was responsible for over 70% of all bitcoin transactions worldwide. After just three years, Mt. Gox became the leading bitcoin exchange and the world’s largest bitcoin intermediary. And then everything went South.

The downfall of Mt. Gox would probably be worth a book on its own. In short, due to negligence, incompetence, mismanagement, and probably more than a little bit of malice, Mt. Gox “lost” 850,000 bitcoin, which amounted to $450 million and around 7% of the total supply at the time. The company filed for bankruptcy at the end of February 2014. One month later, Mt. Gox claimed to have found around 200,000 coins again, bringing down the total amount missing to 650,000. Investigations revealed that most of the funds were stolen slowly over time, starting in late 2011. Today, ten years after the launch of the notorious bitcoin exchange, investigations and legal processes are still ongoing.

The silver lining to the Mt. Gox saga is that a lesson was learned. An incredibly expensive lesson, and a lesson that needs to be repeated over and over again, lest the history that is Mt. Gox will repeat itself: your keys, your bitcoin. Not your keys, not your bitcoin.

Magic Mushrooms: Silk Road

Probably the most notorious chapter of Bitcoin’s early history is the rise and fall of the Silk Road, an anonymous dark market that allowed individuals to buy and sell goods online—independent of their legal status. Launched by Ross Ulbricht in 2011, the Silk Road was a small community of buyers, sellers, and users of recreational drugs. Eventually, it became the place to buy drugs online. The eBay of drugs, as some called it. Today, we would probably describe it as the Amazon of drugs: a website where you could buy any substance from A to Z, and just a few days later, whatever you bought shows up in the mail.

Ross started to dream of an unrestrictive online marketplace around the same time that Satoshi worked on his ideas around Bitcoin. In line with libertarian ideals, he wanted the Silk Road to be a place where you could buy and sell any recreational substance, freely and directly. In his opinion, the government should have no say what a person shall or shall not put into their body. It should be the individual’s choice. Everyone should be allowed to decide for themselves.

At first, he wasn’t sure how to best realize this vision. Obviously, such an endeavor would be immediately shut down by law enforcement. But after a friend of his introduced him to Tor, a path to a technological solution began to emerge. Tor offers the possibility to hide any website or online service behind layers of obfuscation and encryption, which effectively enables someone to run such a site privately and anonymously. If nobody can figure out the location of the servers or the identity of the people that run them, nobody can intervene. However, one problem remained: payments. When Ross started thinking about implementing such an anonymous online market, he wasn’t yet aware of any way to send payments anonymously. Electronic cash was the missing ingredient of the soup that Mr. Ulbricht was cooking.

Bitcoin was the last piece of the puzzle that was required to turn the idea of the Silk Road into reality. Once Ross discovered the magic of the orange coin, he got busy. Now that he had all the tools, he was determined to build the site. The only thing that was left to do was to get his hands on a product that he could sell on his newly created marketplace. His product of choice was psilocybin mushrooms, which he grew himself in a small cabin off the grid. He was able to produce several kilos of these psychoactive mushrooms, telling only his girlfriend at the time about the whole operation. His plan was to work on the code for the Silk Road on the side, building the virtual marketplace while the first product was growing. He would announce the launch of Silk Road in several internet forums once the site was live - BitcoinTalk among others—interested people would figure out the rest. His plan worked, and a few weeks after the harvest, Ross Ulbricht became the first vendor on Silk Road, selling magic mushrooms in exchange for magic internet money.

The Silk Road

What started as a website with magic mushrooms as its only listing eventually grew into something that was larger than even the most optimistic projections of its idealistic founder could have imagined. It is estimated that the Silk Road’s revenue exceeded 9.5 million bitcoin during the duration of its existence, amounting to hundreds of millions in US dollar terms. Some estimates go even as high as $1.2 billion. Other numbers are equally impressive: over one million transactions were facilitated between almost one million registered users, and the site listed tens of thousands of goods. Eventually, Ross Ulbricht, aka Dread Pirate Roberts, was caught and subsequently arrested, and the Silk Road was shut down.³

The story of Ross Ulbricht, his arrest, and the rise and fall of the Silk Road is as fascinating as it is captivating. It is a story of a young, ambitious, and highly intelligent guy that eventually became DPR: dreaded pirate and captain of the largest virtual drug ship the world has ever seen. A tale of idealism, love, multiple identities, corrupt FBI agents, hitmen, moral conundrums, betrayal, friendship, fake murders, real theft, and the blurry lines between good and evil. It is a story that will forever be interwoven with the early days of bitcoin. For many, the Silk Road was a gateway drug to the orange pill: the first contact with Magic Internet Money.

Ross is now serving a double life sentence plus 40 years without the possibility of parole, essentially for launching a website. While the whole story is nuanced and complicated, this is undoubtedly an exceedingly harsh penalty for committing non-violent crimes, especially since details of how the case was handled and evidence was obtained are questionable.⁴

Of course, ideas can’t be imprisoned. After the Silk Road was shut down, other “dark” marketplaces popped up, many of which exist to this day. Undoubtedly, dark and gray online markets will be with us for as long as global communication networks and strong encryption exist. What might be seen as atrocious by some is welcomed by others as a safer and more convenient way to obtain recreational drugs and pharmaceuticals that are either hard to obtain (because of price or the necessity for prescriptions) or illegal in their jurisdiction. Whatever your opinion of these matters might be, bitcoin, and the dark and gray markets it enables, are here to stay.

Due to its persistence and a relentless rise in price, the public perception of Bitcoin shifted from untraceable darknet money to speculative asset over the years. For some people, myself included, the perception shifted even further: from speculative asset to hard money and savings technology. However, I think it’s important to understand the early history of Bitcoin, including its early uses, the motivation behind them, and the reason why Bitcoin was chosen to solve the problems these early adopters faced.

How and why Bitcoin is used—as well as by whom—will undoubtedly keep changing over time. But whether you use it to buy magic mushrooms or not, Bitcoin will always remain Magic Internet Money.

Magic: Teleportation, Shapeshifting, and Invisibility

It’s hard to explain the magic of Bitcoin if you haven’t experienced it yourself. Receiving magic internet money for the first time is, well, magical! Hell, even after all these years in the Bitcoin space, I’m still enchanted. The fact that random people from the internet can teleport value directly into my otherworldy purse is nothing short of miraculous.

The fact that that these coins flow directly between you and me is absolutely magical. No intermediaries, no trusted third parties, no service to sign up to. Just you and me, communicating via a series of tubes.

The implications of this are as profound as they are fascinating. How does it work? Who is in charge? Where do these coins come from? Can I make more? These and a million other questions will pop into your head once you start to grasp the profundity of what just happened: Someone gave you something of value just by sending you a message!

Satoshi was probably the first person that alluded to the magical properties of Bitcoin. In one of his many forum posts, he wrote: “As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: boring grey in color, not a good conductor of electricity, not particularly strong, but not ductile or easily malleable either, not useful for any practical or ornamental purpose, and one special, magical property: can be transported over a communications channel.”

Of course, bitcoin is this magical base metal that Satoshi alluded to. The fact that it can be transported via any communications channel is astounding. It implies that the internet is not a necessity for Bitcoin. In theory, you could use pretty much anything to send (and store!) your bitcoin. Currently, the internet is by far the best communication tool we have. As of now, sending packets across the internet is Bitcoin’s preferred mode of communication. If you want to teleport some sats from point A to point B, you would probably use the internet to do so.

Due to its lack of physicality, there is no limit to what shape your bitcoin might have: text, QR codes, images, sound, artworks, emojis - the only limiting factor is our imagination (more on that in Chapter 17). Whether we are talking about storage or the transmission of transactions, Bitcoin can shapeshift into anything it needs to be. This magical property is, in part, what makes Bitcoin so resilient to censorship. Bitcoin transactions can be encoded into pretty much anything, and—of course—they can be sent via end-to-end encrypted communication channels, making them completely unrecognizable. How can you censor something if you can’t tell what you’re looking at?

'TORCHED H34R7S' by Coin Artist, a puzzle which hid 4.87 bitcoin in plain sight.

But shapeshifting and teleportation aren’t Bitcoin’s only tricks. If I had to pick a favorite, I would probably pick bitcoin’s magical ability to disappear. And I don’t mean the “send me all your bitcoin and I will send you twice the amount back” kind of disappear, but the plausible deniability kind. In essence, all you possess is a magic spell: your private key, which holds the power to unlock your bitcoin so it can be teleported someplace else. Most people store this spell on a piece of paper (or a piece of steel, or a piece of specialized hardware). However, you can—with some effort—learn this spell by heart and move your bitcoin inside your brain, effectively making them vanish.

While this is a horrible idea if you suffer from amnesia, it could be incredibly useful if you are forced to resort to such drastic measures. Imagine all the people that had to flee their country at a moment’s notice, leaving all their valuable possessions behind. Now imagine if they had a meaningful portion of their net worth in bitcoin and the magic spell to unlock them in their head. They could cross the border naked with their wealth intact. There would be nothing for the border officers to find, and with a single “abracadabra,” our naked protagonists could restore their wealth once they arrived in a safe place. Magical, isn’t it?

Internet: The Double-Spending Problem

All computers are copying machines. The internet itself, in essence, is a gigantic copying machine. This, coincidentally, is also the reason why money on the internet didn’t exist until the invention of Bitcoin.

If you move a file on your computer, it doesn’t actually move as real objects do in the real world. It is copied, and after the copy is checked for errors, the original⁵ is deleted. Hence, the problem of money on the internet: if I want to move ten bucks from my computer to yours, the ten bucks are actually copied - bringing the total balance up to twenty bucks during the transfer—and you have to trust me that I will destroy my original ten bucks after you’ve received the copy. Could you trust me to do that? This, in a nutshell, is the double-spending problem. This conundrum is why most people thought that the internet can’t do money.

Money: Facilitating Trust

What do I mean when I say that the internet can’t do money? After all, there are credit cards, online banking, PayPal, Venmo, CashApp, AliPay, WeChat Pay, and many other services that allow you to send and receive money via the internet. However, they all have something in common: a middleman—usually a company—is required to make them work. That’s because you need to trust someone to do the accounting right. All because of that pesky double-spending problem!

In the physical world, we don’t have this problem. You give me an apple. Now I have the apple, and you don’t have the apple anymore. There is no copying process, i.e., no duplication and subsequent deletion. In the physical world, things move naturally from A to B without getting copied. In the physical world, you don’t need a middleman to facilitate transactions.

In cyberspace, the only solution to this problem was having a middleman—a trusted third party—manage the orderliness of transactions. Thus, by default, PayPal, VISA, MasterCard (and all other companies that process transactions) know exactly who paid what to whom at what point in time and for what reason. Knowledge is power, and this particular knowledge gives these trusted third parties the power to block transactions, freeze accounts, decline payments, and de-platform their customers. Further, as history has shown, this data will inevitably be leaked either by negligence, incompetence, or targeted hacks. Trusted Third Parties are Security Holes, as Nick Szabo would say.

Bitcoin does away with all that, which is in part why it is so magical. It behaves like real money in the real world: you hand me a dollar bill, and that’s it. The dollar bill doesn’t have to pass through somebody else to arrive at my hand. And why this dollar bill changed hands is nobody’s business but ours. We can tell others about it, but we are not forced to do so, and most importantly: we don’t have to ask for permission to make this transaction. Bitcoin behaves in the same way: you send me some sats, and that’s it. Now I have those sats, and you don’t.

Becoming a Bitcoin Wizard

Until very recently, you had to be a wizard to use Bitcoin. At least that’s what it felt like. Although Bitcoin came with a graphical user interface from day one, understanding the arcane concepts that make it work was (and still is!) like learning an ancient tongue. Private keys, public keys, hashing functions, cryptographic signatures, elliptic curves, remote procedure calls—for most people, there is simply no difference between these concepts and glyphs describing a magic spell.

If you understand some of these concepts already, congratulations! You have a head-start when it comes to understanding Bitcoin. However, the technical side of Bitcoin is only one piece of the puzzle. Remember: Bitcoin is magic internet money, first and foremost. Many technology-minded people mistake it for a technological invention and don’t see the peculiar properties which make it an astounding monetary innovation.

While using Bitcoin is getting easier every day, the days of the wizards aren’t numbered. To this day, Bitcoin experts discuss developments and ideas in the #bitcoin-wizards⁶ IRC channel, and Bitcoin is still embraced and described as magic internet money. The original wizard is evolving alongside Bitcoin, as is our idea of what a Bitcoin wizard is. Today, it is probably fair to say that the real wizards are the core developers, those who work on improvements at the base layer of the Bitcoin protocol.

Bitcoin wizard painting by @WorldOfRusty.

Understanding Bitcoin is a process, an individual journey. You might end up becoming a bitcoin wizard yourself, just like the people that learned to code⁷ just to contribute to the Bitcoin project. And even if you don’t, I hope that these different ways of looking at Bitcoin will help you on your journey of understanding Bitcoin a little better. At least, I hope that you will shift your perspective on Bitcoin and what it is. While Bitcoin is and always will be Magic Internet Money, it is so much more in its entirety.

Many people who got sucked into the world of Bitcoin describe the experience as “falling down the rabbit hole.” Tipping your toes into this strange world of keys and hashes does indeed feel a little bit like entering Wonderland. Another metaphor that is often used is the “red pill vs blue pill” scene from The Matrix, where Morpheus offers Neo a red⁸ pill (the truth) and a blue pill (ignorance, but bliss). Neo chooses the red pill, and subsequently, he is bound to find out how deep the rabbit hole goes.

Similarly, I believe that the only way to understand Bitcoin’s magical properties is to experience it yourself. After you have set up a non-custodial wallet and written down your seed phrase with pen and paper, stop and realize that these words are the magic spell that can move your bitcoin. For all intents and purposes, these words are your bitcoin. Lose them, and they are gone. Memorize them, and you have bitcoin in your head. Magical.

With great power comes great responsibility, as Uncle Ben taught us. Bitcoin puts you in control, which, in turn, makes you responsible for your bitcoin. Once you get your hands on some sats, you can send them to anyone anywhere, without asking for permission, without any sign-ups or intermediaries. This, in turn, means that the onus is on you to be diligent and cautious. If you lose access to your funds, there is nobody to call. No one can help you to recover them. If you send funds to a scam artist, nobody can reverse this transaction or reimburse you for your gullibility.

This shift of trust and responsibility—from third parties to yourself - is what allows for the emergence of sound money from the Bitcoin network. But what differentiates sound money from an unsound one? And why do we need sound money in the first place? Answering these questions will be the focus of the next chapter.

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⚡ s@ts.dergigi.com

Magic Internet Money is a chapter of my upcoming book 21 Ways.

So far, no female was bold or stupid enough to make such a claim. ↩
There is one later message, posted on March 7, 2014, in which Satoshi simply states that “I am not Dorian Nakamoto.” It is believed to be geniuine, although without cryptographic proof we can’t be sure. ↩
If you are interested in the details of this particular chapter of Bitcoin’s history, I would recommend Silk Road by Eileen Ormsby and American Kingpin by Nick Bilton, two great books on the topic. ↩
Free Ross is a petition that was launched to protest this grossly excessive sentence and fight for Ross Ulbricht’s clemency. ↩
Note that when dealing with pure information, it is a bit difficult to speak of “originals” and “copies” since information can be copied perfectly and physical location doesn’t necessarily make sense. ↩
irc://irc.freenode.net/bitcoin-wizards ↩
My friend Rajarshi Maitra, for example. ↩
In Bitcoin, the pill to swallow is orange, of course. ↩

People

Mon, 27 Sep 2021 00:00:00 +0000

People are the most wonderful thing. Full of potential, full of joy, full of wonder. Whenever I see people, I see dancers, artists, musicians, builders, gardeners, plumbers, and poets. Unique human beings, with hearts and souls, and mothers and fathers, and wishes and dreams.

Every time I meet new people, I am amazed by their stories. I am fascinated by their past as well as by their potential future. They will share all of this with you, right here, in the present, as long as you are present with them.

I judge people by what they might be, — not are, nor will be.

Robert Browning

We must not forget that most people are good. They have to be; otherwise, the world we live in would not be possible. We would have constant war, and death, and deception, and suffering, and worse. But we don’t. The world is alright because the people are alright. We must not forget that this is true, so I will repeat it once more for emphasis: most people are good people.

Dreams

Mon, 20 Sep 2021 00:00:00 +0000

Dreams are a curious thing. They are vivid and real; until they aren’t. In the “real” world, once you fulfill a dream of yours, the dream becomes reality and thus vanishes.

What is real in this dream-like world is hard to tell, sometimes. Likewise, what is merely a dream and what will become reality soon is hard to tell, too. Most realities start out as dreams. Most dreams are rooted in reality. Often times the lines are blurred. Sometimes they are nonexistent.

I wonder, I wonder, what you would do if you had the power to dream any dream you wanted to. And you would of course be able to alter your time sense. And slip, say, 75 years of subjective time into eight hours of sleep. You would, I suppose, start out by fulfilling all your wishes. You could design for yourself what would be the most ecstatic life. Love affairs, banquets, dancing girls, wonderful journeys, gardens, music beyond belief…

And then, after a couple of months of this sort of thing - at 75 years a night - you‘ll be getting a little taste of something different. You would move over to an adventurous dimension. Where there were certain dangers involved and the thrill of dealing with dangers. And you could rescue princesses from dragons, and go on dangerous journeys. Make wonderful explosions and blow them up. Eventually, you get into a contest with enemies. And after you’ve done that for some time, you will think up a new wrinkle: to forget that you were dreaming.

So that you’d think it was all for real. And to be anxious about it. Because it would be so great when you woke up!

And then you say, well, like children who dare each other on things: How far out could you get? What could you take? What dimension of being lost, of abandonment of your power, what dimension of that could you stand? You could ask yourself this because you know you would eventually wake up.

After you’ve gone on doing this you see for some time, you’d suddenly find yourself, sitting around in this room, with all your personal involvements, problems, etc., talking with me. How do you know if that’s not what you’re doing? Could be. Because after all, what would you do if you were God?”

Alan Watts

Well, what would you do? What would I do?

If I had to guess, I would be sitting here, writing about dreams and gods, thinking about gods and dreams.

Moving Towards a Bitcoin Standard

Thu, 09 Sep 2021 00:00:00 +0000

What a historic day. The first country moved towards a Bitcoin Standard, albeit partially. A lot can be said about Bukele's decision to make bitcoin legal tender in El Salvador. Yes, it is a government mandate. Yes, it is unclear whether the LNP/BP stack can handle the load. Yes, the government wallet is not everything it could be. Yes, the airdrop requires KYC. Yes, there will be pushback and FUD and confusion and all of it.

However, the fact that bitcoin is now legal tender in a country is absolutely astonishing. Yesterday, some nerds discovered a system that allows magic internet money to emerge by sending messages back and forth. Today, a country decided to adopt this system as their currency, with warts and all.

It's official. Bitcoin is legal tender.

It seems to me that the Bitcoin Standard will continue to emerge step-by-step, individual by individual. Some of these individuals will be CEOs of publicly traded companies. Others will be leaders of nations.

No matter your background or profile, the steps you take on your bitcoin journey will be similar. First, you will acquire and hold bitcoin. After you've successfully managed to hold on to your bitcoin and ride the rollercoaster for a while - I assume you don't have lettuce hands - you will most likely discover that bitcoin is superior savings technology. Once this realization hits you, you will start stacking sats.

Now it gets interesting: over time, the sats you stack will gain in purchasing power, while the fiat money in your bank account continually depreciates. As the weeks, months, and years go by, most of your savings will end up being in bitcoin, no matter how many sats you stack each week. You will start valuing your sats more and more, while you will start valuing your fiat money less and less. You will start to think in Bitcoin. You will start to measure the potential of everything else against the sats you could have stacked. You will realize the cost of every choice you make: the cost of doing something else; the cost of not stacking sats. You will realize what the exponential monetization process that is happening before your eyes represents: the ultimate opportunity cost.

You will lower your time preference. You will adopt the necessary responsibility to use Bitcoin properly. You will own nothing but bitcoin, and you will be happy.

The Great Re-Sat.

This is not a sustainable situation, of course. Your time preference can be low, but it can't be infinitely low. You have to eat, you have to dress, you have to pay for shelter. You will have emergencies that will require you to part with your precious sats. This is okay. After all, money is a means to an end, not an end in and of itself.

After a while, you will realize that being paid in fiat only to convert most of it into bitcoin doesn't make a lot of sense. You will talk to your employer. You will tell him: "Hey, why don't you #PayMeInBitcoin?" He might be hesitant at first. But if he is awesome, he will agree that paying good employees with good money is a sensible thing to do. Congratulations, you are now on a bitcoin standard.

As we can see, switching to a Bitcoin Standard is a process. It doesn't happen all at once. It doesn't happen overnight. It usually involves the following steps:

Buying bitcoin
Holding bitcoin
Stacking sats
Spending bitcoin
Earning bitcoin
Dropping fiat money

Most people are still at (1), having acquired some sats for whatever reason, presumably to speculate and sell them for fiat at a later point. The main narrative of Bitcoin is currently stuck at (2): bitcoin as pristine collateral, or digital real estate, or an inflation hedge. While this narrative is true, it is also incomplete. Bitcoin is way more than just Gold 2.0. Most bitcoiners are at (3), farming fiat and stacking sats. They understand where Bitcoin is heading and use bitcoin as their main savings technology. They don't have any intention of selling for fiat money ever. They are playing the long game.

Step (4) and (5) is where El Salvador comes in. Once bitcoin is legal tender, earning and spending bitcoin becomes not only easy but natural. Yes, bitcoin is still more volatile than most fiat currencies. However, this will change over time as bitcoin adoption grows. And to be honest, many fiat monies are so volatile to the downside that, arguably, most bitcoiners feel more comfortable with bitcoin as their unit of account, volatile to the upside as it may be.

Very few people are at step (6), having exited the fiat system completely. But make no mistake, this is where things are heading. Bitcoin and fiat monies are in direct competition with each other since monetary networks are singular networks. You can not store a single unit of value in two things at the same time. You have to decide: do I save in bitcoin, or do I save in something else? Communication networks, for example, don't have this property. I can send you the same message on WhatsApp, and on Signal, and via email. While they do compete, usage of one does not exclude usage of the other. Money is different. You have to make a decision for every transaction, including transactions with your future self, which we call saving.

Step (6) is where the rubber meets the road. Step (6) is where conflict with the legacy system will unavoidably arise. Step (6) is the inevitable result of unleashing Bitcoin upon the world: a circular economy of 2.1 quadrillion sats exchanged for goods and services. Seamless, borderless, final, instant, and frictionless. I call this stage Stage O.

Stage O: Bitcoin is Omnipresent.

Implications of Outlawing Bitcoin

Mon, 02 Aug 2021 00:00:00 +0000

Bitcoin is complicated and scary. Just like fire, electricity, computers, and every other ground-breaking invention before it. It is complicated and scary because most people do not understand how it works and why it might be useful.

Once you begin to understand how it works, you will begin to understand why it is so useful to people around the world. And I hope that once you truly understand its basic operational principles, you will begin to understand why outlawing Bitcoin is a foolish proposition.

In light of recent comments by legislators and politicians, we must not forget what Bitcoin does and how it does what it does. Bitcoin is text. Bitcoin is speech. Bitcoin is math. Bitcoin has no jurisdiction, just like 2+2=4 has no jurisdiction. Bitcoin knows no borders. Bitcoin is everywhere and nowhere, and if used and secured properly, bitcoin is as confiscatable as a thought. No amount of legalese or otherwise complicated language will change these facts.

Using Bitcoin does not require any special equipment. We use software and specialized hardware to use Bitcoin more efficiently, and in a more secure manner, but in theory, Bitcoin can be run on pen and paper.

The following statements are and will always be true:

You can create a private key by flipping a coin.
Holding a private key allows you to receive sats and create transactions.
Creating a transaction is math.
Sending a transaction is sending a message.
Mining bitcoin is guessing a number.
Everything in Bitcoin is information.

These statements will sound strange to you if you don’t know how Bitcoin operates, but they are true nonetheless. Thankfully, Bitcoin is an open system, which means that everyone can learn the operational details of the network. I encourage you to do that and, if you can, educate others. We must not forget what politicians are implying when they are musing about “banning wallets” and making up nonsensical and disingenuous adjectives such as “self-hosted” and “non-custodial.”

A wallet is nothing special; it can be just some words in your head.¹ You don’t need specialized equipment to generate a secure wallet. A coin or some dice is all you need.

Creating a Wallet Is Flipping a Coin

To interact with the Bitcoin network, you need a wallet, which is to say you need a private key.² While conventional concepts do not apply well to Bitcoin, one could argue that creating a public-private key pair is akin to creating an account. And since public keys are derived from private keys, we only have to answer one question: what are private keys, and how are they created?

A private key is a 256-bit number. That’s it. End of story.³

So, what exactly is a 256-bit number? Well, as the name suggests, a 256-bit number is a number that, when represented using zeros and ones, is 256 binary digits long. In other words: it’s a really big number.

⚠️ Warning: The private keys shown on this page are real private keys. Do not send bitcoins to or import/use any sample keys; you will lose your money. I repeat: YOU WILL LOSE YOUR MONEY

The following is a 256-bit number:

0010111011001011101110101011010110001001101111010001011010100110001001110010101110101010101100000001101100000111000000011100010100100001000001010001011011100000111000111010101001111101000110111010100011011111000101111100000110100010110110000010101010111111

These zeroes and ones - or, more accurately, the information contained in these zeroes ones - are a valid Bitcoin private key. You could use this information to receive and send transactions on the Bitcoin network. ⁴

Why is this important? It is important because I can create a Bitcoin wallet by sitting in my room, flipping a coin 256 times. If you want to outlaw “anonymous wallets,” you will have to outlaw this activity, along with all other techniques to create random numbers: rolling dice, drawing cards, measuring optical or atmospherical turbulences, and so on.

Further, since these zeros and ones are just information, you can represent them in countless different ways. The information does not change; just the representation of the information changes. The hexadecimal version 12e188aeb7c9aeb0eef7fac7c89e3b9b535a30b2ce8d6b74b706fa6f86b061e4 represents the same private key as the zeros and ones above. As does the following mnemonic code, which can be learned by heart with some practice:

concert, frozen, pull, battle, spend, fancy, orient, inside, quiz, submit, scare, mechanic, awake, mercy, lock, inside, language, tag, dash, control, borrow, hip, print, absorb

Remember: this information, this 256-bit number, is all you need to interact with the Bitcoin network. You do not need an ID, or passport, or utility bill, or proof of residency. You do not even need to be human. If you are in control of a Bitcoin private key, you can send and receive transactions.

If you want to understand Bitcoin, you will have to understand that a wallet can be created by flipping a coin 256 times.

Holding a Private Key Allows You to Earn Sats

You flipped a coin 256 times. Now what? Time to earn some money!

To receive sats, you need an address, which can be derived from your private key. Grab a pen and paper, go to your standing desk, and calculate your public key according to BIP32. If you are short on time or bad with math, don’t despair. There are online tools⁵ that will do the math for you. But remember that these software tools do nothing weird or magical. It’s just math, and you can do it yourself using nothing but a pen and paper.

The outcome of all that math will produce a number that, when encoded as a bitcoin address, will look something like this:

bc1qd6yf555vwns0mpgy55epux4tzf8a40nmw2vpgq

Share your address with someone else, and you are ready to receive your first sats. Keep in mind that you don’t have to share the address in this exact format. You can encode it as a QR code, as a number, as emojis,⁶ as an audio file, or as braille. You can put it in your invoice, display it on your homepage, in your profile, send it via a messaging application, or tattoo it on your body. It is just information. It can be represented in countless ways.

Easier to read for computers.

Easier to read for blind people.

Easier to read for millenials.

Also, keep in mind that you do not have to be online to receive sats. The sats won’t be sent to you directly. Someone will sign a message that will transfer the sats to your name - if you excuse my imprecise language. It’s not your name, of course, since Bitcoin doesn’t know any names. But that would be one way to think about it.

Someone just broadcast a transaction that includes your address as an output, which means that you will receive your first sats soon. Now what? Time to create a transaction and pass them on.

Creating a Transaction Is Math

If you have a private key, you can create a transaction. Remember that a private key is just a large number. What can you do with numbers? You guessed it: math!

In its simplest form, a bitcoin transaction is a message that says something like the following:

I, Alice, hereby transfer 21 sats to Bob. Signed, Alice.

Real transactions might have multiple senders and multiple recipients as well as various other tweaks and efficiencies, but the essence remains the same. What is important to note is that nothing is secret in a transaction. All transactions are broadcast across the whole network, viewable and verifiable by everyone. All transactions are plain text. Nothing is encrypted.

To write “Alice sends 21 sats to Bob” in a way that makes sense to the Bitcoin network, a special, more precise format has to be used. Don’t get confused by the format of the message or how the message is encoded. It doesn’t matter if the language is English or something that is easier to understand for computers. The meaning of the message remains the same. I could write the above as [A]--21-->[B] and sign it with the private key that corresponds to A, and it would essentially be the same thing.

A bitcoin transaction (artist's rendition).

This brings us to the important part: the signature. Hand-written signatures are not very useful in a digital world, which is why mathematicians and cryptographers came up with a modern equivalent: digital signatures.

I will not go into detail explaining how they work, but the important part is this: it’s all just math and numbers. Your private key acts as a large secret number that is used to perform mathematical operations. The result of these mathematical operations is a digital signature (another number) that can be checked using your public key, which is, again, a number.

Math is what makes public-key cryptography work. The beauty of this math is that you can verify that the sender is in control of a secret number without revealing the secret number. This is what cryptographic signatures do.

Let’s look at an example. The following is a valid transaction:⁷

01000000017967a5185e907a25225574544c31f7b059c1a191d65b53dcc1554d339c4f9efc010000006a47304402206a2eb16b7b92051d0fa38c133e67684ed064effada1d7f925c842da401d4f22702201f196b10e6e4b4a9fff948e5c5d71ec5da53e90529c8dbd122bff2b1d21dc8a90121039b7bcd0824b9a9164f7ba098408e63e5b7e3cf90835cceb19868f54f8961a825ffffffff014baf2100000000001976a914db4d1141d0048b1ed15839d0b7a4c488cd368b0e88ac00000000

You can use various tools⁸ to decode and inspect it. These tools help us humans to make sense of it all, but the underlying reality remains: it’s numbers all the way down.

Byte-map of a Bitcoin transaction.

To reiterate, the following is all you have to do to interact with the Bitcoin network:

Step 1: Flip a coin a couple of times.
Step 2: Do some math.
Step 3: Send and receive messages.

Outlawing any of these three steps is ridiculous. It is ridiculous because of the peculiar nature of information. If you outlaw certain kinds of information, you implicitly outlaw all representations of this information: text, speech, images, emojis, QR codes, sign language, interpretive dance, and so on. And since all information can be represented as a number - including math and computer code itself, it boils down to making numbers illegal.

Although banning numbers is as ridiculous as it sounds, it has happened in the past. Illegal numbers and illegal primes are a thing precisely because some people tried to outlaw certain kinds of information.

Society and law makers will have to grapple with the fact that Bitcoin wallets and transactions are just information, as is everything else in Bitcoin.

Spending Sats Is Sending a Message

Because a Bitcoin transaction is just information, sending sats to someone is propagating that information, or, in other words: sending a message. You don’t even have to send the message to a particular person. Base-layer transactions are broadcast transactions. They are sent to everyone on the network.

Keep in mind that any communications channel can be used to send and receive information. The internet is simply the most efficient communications tool we currently have. But there is no reason why you couldn’t use a satellite connection or ham radio, which people are and have been using, be it out of fun or necessity.

Bitcoin over ham radio. Source: NVK

The fact that spending sats is sending a message doesn’t change on higher layers. Nodes on the Lightning Network are doing the same thing: they are sending messages back and forth. Nothing more, nothing less.

This hides two truths about Bitcoin in plain sight:

Bitcoin is a messaging protocol
All messages are plain text

Messages might be sent through an encrypted communications channel, but the messages of the protocol are and will always be plain text. They have to be. The whole point of Bitcoin is that everything is easily verifiable by everyone.

Outlawing Bitcoin implies outlawing messaging. Keep in mind that we are dealing with pure information. Information can be encoded in virtually endless ways: different formats, same meaning. And herein lies the crux: you can not outlaw the meaning of a message. If you do not know the protocol, the meaning of the message will elude you. If you do not speak the language, you don’t know what is said or why it is being said.

This brings us to the last piece of the Bitcoin protocol puzzle: mining.

Mining Bitcoin Is Guessing a Number

Most people do not understand what Bitcoin mining is and how it works. They do not speak the language of Bitcoin, failing to understand both what is spoken and why it is spoken in the first place.

Bitcoin miners aren’t doing anything special, just like computers aren’t doing anything special. They are crunching numbers.

Not too long ago, when you said “computer,” you were referring to a person. It was a job description, not a thing. The most efficient way to run the numbers was to pay a person to sit down and do the math.

Most early computers were female.

Over time, we’ve built ever more efficient contraptions to do the math for us. Today, when we say “computer,” we mean something that uses microchips instead of brains to do the computing. But the underlying reality has not changed: computers crunch numbers. They do not do anything special, or devious, or magical. The same is true for ASICs.

Bitcoin, like NASA software before it, can run on a human substrate as well. We do not need ASICs to mine bitcoin. We could do it by hand. We could use our brains. It’s slow, and cumbersome, and inefficient. But we could absolutely do it.

Mining on wetware.

Just like you could use pigeons instead of computers to run the internet, you could use humans instead of silicon chips to run bitcoin. It would be highly inefficient, yes, but it would work just the same.

As Ken Shirriff showed in his 2014 video, SHA-256 is simple enough to be computed with pen and paper. He managed to do one round of SHA-256 in 16 minutes and 45 seconds, which works out to a hash rate of 0.67 hashes per day.

I am showing you all this to make it explicit what the basic building blocks of Bitcoin are: numbers, math, and the exchange of messages.

This is true for all processes in Bitcoin. It doesn’t matter if you create a private key, derive a public key, generate a Bitcoin address, mine a block, sign a transaction, or open a Lightning channel. All you are doing is coming up with or finding large numbers, manipulating these numbers via mathematical equations, and sending the result of these equations to your peers. That’s it.

Communication does not lose constitutional protection as “speech” simply because it is expressed in the language of computer code. Mathematical formulae and musical scores are written in “code,” i.e., symbolic notations not comprehensible to the uninitiated, and yet both are covered by the First Amendment. If someone chose to write a novel entirely in computer object code by using strings of 1’s and 0’s for each letter of each word, the resulting work would be no different for constitutional purposes than if it had been written in English.

Junger v. Daley*, 209 F.3d 481, 484

Once you understand that Bitcoin is information - and that computers and the internet are just the best substrates to transform and transmit this information - the implications of outlawing Bitcoin should become clear. You can put Bitcoin in a book, which means you would have to ban the publication of books. You can speak bitcoin by uttering 12 words, which means you would have to ban speech. You can mine bitcoin with pen and paper, which means you would have to outlaw math, or thinking, or writing. You can store bitcoin in your head, which means, of course, that having certain thoughts is illegal if “holding bitcoin” is illegal.

If having 12 words in your head is illegal, something is terribly wrong with the law. If the police storm your building because you are finding or creating a random number in the privacy of your own home, something is terribly wrong with the police. If the peaceful exchange of messages is seen as dangerous or immoral by society, something is terribly wrong with society. If speaking or knowing numbers becomes a criminal act, I don’t want to be a law-abiding citizen in the first place.

Bitcoin is pure information. It utilizes the properties of information as well as the transformation of information - computation - to build up a shared construct that we can independently agree upon and verify. It is nothing but math and numbers. Zeros and ones, sent back and forth by voluntary participants that want to send and receive messages in peace.

Conclusion

A Bitcoin private key is a large number. When represented as words, this number can be stored in your head. A private key is all that is required to send and receive payments. You can sign and verify transactions with pen and paper. You can mine bitcoin with pen and paper. Bitcoin is just a messaging protocol that does these operations efficiently and automatically.

Understanding Bitcoin from first principles will make it obvious that the idea of banning “anonymous crypto wallets” is not feasible. You would have to outlaw the generation of entropy, the act of coming up with random numbers. You would have to surveil everyone at all times, kicking in their door and arresting them once they sit down and start flipping a coin or rolling some dice. You would have to pass legislation that criminalizes thought itself since creating an “anonymous bitcoin wallet” is nothing more than coming up with 12 random words.

Dear legislators, I ask you earnestly: Are you prepared to outlaw thought itself? Should math be illegal? Do you genuinely believe that outlawing speech is a good idea?

I hope that we can all agree that thought and speech are paramount to a free and prosperous society. And I hope that, as more and more people understand how Bitcoin operates, citizens and legislators alike will realize that Bitcoin is just that: thought and speech.

Bitcoin Is An Idea

Sun, 13 Jun 2021 00:00:00 +0000

Don’t worry about people stealing an idea. If it’s original, you will have to ram it down their throats.

Howard H. Aiken

There’s no flesh or blood within this cloak to kill. There’s only an idea. Ideas are bulletproof.

Alan Moore, V for Vendetta

On October 31st, 2008, the future trajectory of our global society was forever changed. A breakthrough was made, and an unstoppable idea was let loose on the world. An idea so profound, so outrageous, that it was ignored by almost everyone for the first couple of years—and is still dismissed by most: Bitcoin: A Peer-to-Peer Electronic Cash System.

The whitepaper released by Satoshi Nakamoto on this Halloween night describes an idea that will inevitably take the world by storm. While most people still think of Bitcoin as nothing more than a get-rich-quick scheme — completely missing the profound change it will continue to have on society — it becomes more obvious every day that it won’t go away.

“Ideas, unlike solid structures, do not perish,” Alan Moore reminds us. “They remain immortal, immaterial and everywhere, like all Divine things.”

On this fateful night in 2008, Satoshi let the genie out of the bottle. We went from a world where digital cash was just an idea to a world where Bitcoin exists. Not only is the idea here to stay, but with every passing block, Bitcoin reminds us that this idea is now a reality. As we shall see, this new reality is more powerful than one might think at first. It is powerful because it will usher in a new economic paradigm. It is powerful because the time is ripe for it. It is powerful because it can’t be stopped. As Victor Hugo reminds us: nothing is as powerful as an idea whose time has come. Bitcoin is here to stay; and Bitcoin’s time is now.

An Idea Whose Time Has Come

One withstands the invasion of armies; one does not withstand the invasion of ideas.

Victor Hugo

Contrary to popular belief, Bitcoin did not come out of nowhere. The idea of digital cash has a long and rich history. Most notably, a loose collective known as the cypherpunks wrote at length about digital anonymous cash, how such systems might be realized, and the societal implications of strong cryptography in general. Hence the name: cypherpunks. ¹

After forming the group in 1992, Eric Hughes, Timothy C. May, and John Gilmore created the cypherpunk mailing list to discuss and share their ideas around cryptography, remailers, anonymity, digital cash, and “other interesting things” with a wider group of people. Many years later, a cypherpunk by the name of Satoshi Nakamoto chose to publish the Bitcoin whitepaper on a similar mailing list: the cryptography mailing list.

As is apparent by studying their writings, the cypherpunks cared a great deal about the idea of digital cash. In 1993, Eric Hughes discussed the idea of digital cash, its relation to privacy, and its importance for a free society in A Cypherpunk’s Manifesto: “Since we desire privacy, we must ensure that each party to a transaction have knowledge only of that which is directly necessary for that transaction. Since any information can be spoken of, we must ensure that we reveal as little as possible. In most cases personal identity is not salient. When I purchase a magazine at a store and hand cash to the clerk, there is no need to know who I am.”

The idea of digital cash (or electronic cash, as Satoshi chose to call it in the Bitcoin whitepaper) is to have something in the digital realm which behaves as cash does in the real world. No identity or sign-up required, directly exchangeable for goods and services, and virtually untraceable.

Even the IANA², a standards organization responsible for defining HTTP status codes (among other things), recognizes the idea of digital cash. We all know the infamous 404 error code, indicating that a resource can’t be found. Few people know that there is also a 402 error code, indicating that the resource can’t be accessed because it requires payment. However, since digital cash did not exist at the time, the status code was “reserved for future use” and isn’t widely used as of today.

The cypherpunks focused mainly on the privacy aspect of digital cash. Monetary and economic aspects were secondary. They realized that privacy is absolutely paramount for a free and open society. After all, the opposite—complete surveillance—can only lead to oppression and stagnation, since new and controversial ideas won’t be allowed to flourish. No matter what freedoms you think you have, in the end, surveillance renders all other freedoms useless.

Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system. An anonymous transaction system is not a secret transaction system. An anonymous system empowers individuals to reveal their identity when desired and only when desired; this is the essence of privacy.

Eric Hughes, A Cypherpunk’s Manifesto

While Bitcoin is a breakthrough in many ways, all the technical parts that make it work did exist already:

Public-key cryptography
Peer-to-peer networks
Digital signatures
Cryptographic hash functions
Cryptographic time stamps
Hash chains
Proof-of-work

We will explore all these concepts in more detail at later points in the book.

Satoshi did not invent any clever new algorithm or cryptographic primitive. Instead, he found a way to combine existing technologies in an ingenious way, using economic incentives and game theory to bootstrap and secure the system.

The cypherpunks were well aware that even if the base technology exists in theory, some things simply need time to develop. In 1992, Timothy May wrote in The Crypto Anarchist Manifesto: “The technology for this [...] has existed in theory for the past decade. [...] But only recently have computer networks and personal computers attained sufficient speed to make the ideas practically realizable. And the next ten years will bring enough additional speed to make the ideas economically feasible and essentially unstoppable.”³

While I do believe that Bitcoin (the network) is essentially unstoppable already, Bitcoin the idea is truly unstoppable. After all, as Alan Moore put it so succinctly, ideas are bulletproof.

In the first decade of its existence, Bitcoin went from idea to implementation to proof-of-concept to niche monetary asset. In the next decade, it will probably become a force on its own, transcending boundaries and transforming our understanding of money and value in the process. The idea, however, wasn’t conceived at Bitcoin’s birth: it was conceived by thinkers and tinkerers of the electronic age, multiple decades before Satoshi Nakamoto entered the scene.

History of Digital Cash

A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s.

Satoshi Nakamoto

Bitcoin’s pre-history is as long as it is fascinating. Satoshi was able to build upon various technologies and protocols, some of which go back 50 years and more. While 50 years might be a long time in technology, the art of cryptography is way more ancient than that, dating back as far as 1900 BC.

It’s hard to say what the most important building blocks were, but the most fundamental ones are probably digital signatures⁴ (Diffie and Hellman, 1976) and public-key cryptography⁵ (Rivest, Shamir, Adleman, 1978). Without these ideas, Bitcoin couldn’t exist.

Satoshi's value-add was in the aggregation, distillation, and combination of technologies.

Various digital cash systems have been developed before Bitcoin. All of them failed eventually, and all for similar reasons. The following are particularly interesting in the context of Bitcoin:

Ecash by David Chaum (1982)
E-gold by Douglas Jackson and Barry Downey (1996)
hashcash by Adam Back (1997)
bit gold by Nick Szabo (1998)
b-money by Wei Dai (1998)
RPOW—Reusable Proofs of Work by Hal Finney (2004)

Let’s take a closer look at these systems, see what they brought to the table, and explore why they failed.

Ecash (David Chaum, 1982)

Ecash utilized digital signatures to prove ownership, an idea that is still used in Bitcoin today. Proposed by David Chaum in 1982, it was later implemented by his company and operational for three years before the firm went bankrupt in 1998. Chaum is still active as a cryptographer. He pioneered many cryptographic techniques and pushed the development of privacy-preserving technologies forward. One of the privacy-enhancing transaction techniques in Bitcoin, the Chaumian CoinJoin, is named in his honor. While Ecash was cryptographically and technologically interesting, it wasn’t a monetary innovation and ultimately failed because it was operated by a centralized entity: DigiCash Inc., the company founded by Chaum.

E-gold (Douglas Jackson and Barry Downey, 1996)

E-gold wasn’t particularly ground-breaking cryptographically, but it was one of the first digital currencies that gained traction. Although others existed before it (OS-Gold, Standard Reserve, INTGold), e-gold is considered to be the first successful digital currency that became popular enough to have some merchant adoption. At its height, e-gold had five million users and processed value transfers in the order of $2 billion. Besides the e-gold tokens backed by gold, other precious e-metals could be acquired: e-silver, e-platinum, and e-palladium. The demise of e-cash, again, was that it was a centralized service run by a company: Gold & Silver Reserve Inc. The U.S. government filed a lawsuit claiming that the company was running an unlicensed money transmitting business. In the end, the e-cash project failed because it was operated by a company that could be shut down.

Hashcash (Adam Back, 1997)

Originally proposed in 1997, and more formally published as Hashcash - A Denial of Service Counter-Measure in 2002, Hashcash is one of the essential ideas that made Bitcoin possible. While other researchers had the idea of Pricing via Processing⁶ before Adam Back (Dwork and Naor, 1992), his paper was referenced by Satoshi in the Bitcoin whitepaper and led to what is known as Bitcoin’s proof-of-work today. As far as I can tell, the term proof-of-work was first introduced in the Hashcash paper.⁷

Hal Finney, one of the legends of the early Bitcoin days, beautifully and succinctly described hashcash as follows: “Hashcash is a textual string in a particular format which has a special property: when run through the SHA-1 hash algorithm the result has the first N of its initial bits equal to zero, where N is typically around 20-30. The terminology used for hashcash describes the number of leading zero bits as the size of its ‘collision’. Because of SHA-1’s properties, the only way to find a string with a large collision size is by exhaustive search: trying one variation after another, until you get lucky.”⁸

For example, the SHA1 hash of the hashcash string

1:20:040806:foo::65f460d0726f420d:13a6b8

produces a string with five leading zeros: ⁹

00000f91d51a9c213f9b7420c35c62b5e818c23e

The leading number of zeros in a hashed hashcash string indicates how valuable the hashcash string is. Because there is no other way than brute force, the number of zeros is directly correlated with the cost of production, which, in the digital realm, is the cost of computation.

In essence, hashcash utilizes the fact that computation cycles cost time and real-world resources. Back proposed that introducing the electronic equivalent of a postage stamp via hashcash could be its main use case. While fighting e-mail spam seemed to be on the top of his mind, he also proposed that it could be used as digital cash, going as far as sketching out a migration path that could lead to its integration in Chaum’s ecash. While Bitcoin’s proof-of-work algorithm differs slightly from Hashcash’s (using double-SHA256 instead of SHA1, for example)—the idea remains the same: computing a hash can’t be done without flipping bits, which in turn can’t be done without expending time and energy. Hashcash exploits the peculiar property of our universe that any computation, i.e. any change of a system, requires energy. In other words: you can’t cheat physics. Computation will never be free.

The genius of Hashcash was finding and describing computational functions where computation is expensive but verification is inexpensive. You can think of hashcash puzzles like solving Sudokus or Rubik’s Cubes: hard to solve, easy to check. While various Hashcash implementations were used to prevent spam, the concept wasn’t widely applied to currencies before Satoshi used it in Bitcoin.

Bit gold (Nick Szabo, 1998)

Building upon the work of Adam Back and Hal Finney, “bit gold” can be described as a direct predecessor to “bit coin.”¹⁰ While the system was never implemented, the way Szabo envisioned it to work in theory is remarkably close to the way Bitcoin works in actuality.

The purpose of bit gold, as the name implies, was to create a digital monetary good independent from any central authority, which in turn can be used as a store of value—just like gold in the physical world. Szabo writes: “The objective, which I argued for vigorously, was to create a long term store of value independent of any central authority, yet far more secure than traditional gold.” ¹¹

Precious metals and collectibles¹² have an unforgeable scarcity due to the costliness of their creation. [...] Thus, it would be very nice if there were a protocol whereby unforgeably costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust.

Nick Szabo

One point that Szabo makes repeatedly is that physical gold has various problems and is quite insecure when compared to solutions rooted in cryptography. Storage, for example, is only as secure as the doors and walls that protect it. And in the end, someone can always break in and take it. The same goes for transportation. You can’t send it securely without extraordinary effort—and no matter your effort, someone could always intercept it. Even validation is problematic, as an abundance of “gold” bars made predominantly of lead or tungsten attest. Over time, these insufficiencies of gold inevitably lead to centralization in vaults and banks, which comes with its own set of problems.

Bit gold achieves all the essential properties of gold, while avoiding the insecurity of gold which has plagued civilization for millenia.

Nick Szabo

The intended purpose of bit gold isn’t the only thing that will be familiar to bitcoiners today. The way the system was supposed to work will be familiar as well. Granted, there are some crucial differences, but the basic idea is eerily similar.

The following seven steps are taken directly from the bit gold paper and outline how the system would operate:

A public string of bits, the “challenge string,” is created (see step 5).
Alice on her computer generates the proof of work string from the challenge bits using a benchmark function.
The proof of work is securely timestamped. This should work in a distributed fashion, with several different timestamp services so that no particular timestamp service need be substantially relied on.
Alice adds the challenge string and the timestamped proof-of-work string to a distributed property title registry for bit gold. Here, too, no single server is substantially relied on to properly operate the registry.
The last-created string of bit gold provides the challenge bits for the next-created string.
To verify that Alice is the owner of a particular string of bit gold, Bob checks the unforgeable chain of title in the bit gold title registry.
To assay the value of a string of bit gold, Bob checks and verifies the challenge bits, the proof of work string, and the timestamp.

There are two crucial differences between Szabo’s approach and Bitcoin. The first is that bit gold requires two separate registries: one for recording timestamps (to note when the bit gold was created), and one for recording property titles (to see who is owning the bit gold). The second is that bit gold is supposed to rely on benchmark functions (as opposed to one-way functions) to generate a proof of work. Benchmark functions are functions proposed by Szabo that are computationally stable, i.e. a set of functions that maintain a similar degree of difficulty among all miners. He put considerable effort into defining and exploring these functions, trying to formulate mathematical proofs that every computation will take at least a certain amount of time no matter what computer architecture is used.¹³ However, since computers get faster all the time, he remarked that finding such a function will be difficult: “A potential big problem remains: [...] The world lacks a cryptanalytically stable problem.”

The lack of a stable benchmark function leads to a multitude of problems: older “coins” created by users would have a different costliness than newer ones since computers get faster as technology progresses. Thus, two different coins—or strings of bit gold, as Szabo called them—would not have the same value. If Moore’s Law is any indication, a coin that is two years older than another one might be considered twice as valuable because the doubling of processing power made minting the newer one twice as easy. Another problem is that—if bit gold became valuable enough—computational breakthroughs might be kept secret by those who made them, so valid strings of bit gold can be amassed and sold on the market at a premium. This would exacerbate the inflation problem, which is another problem that Szabo identified but didn’t solve.

In addition, Szabo correctly identified the issues of previous approaches such as Hashcash and MicroMint¹⁴: (1) their value was dependent on a central authority, (2) the hash functions they use are cryptographically vulnerable, i.e. they lack cryptanalytical stability. As described above, the later problem is still present in bit gold.

b-money (Wei Dai, 1998)

Like Szabo’s bit gold, Wei Dai’s b-money was never implemented. It remained a theoretical proposal of how a monetary protocol could work. While Bitcoin is a working implementation of the vision that b-money outlines, it seems that Satoshi was unaware of b-money while coming up with the core design of Bitcoin. As Wei Dai wrote in a response to a LessWrong article: “my understanding is that the creator of Bitcoin [...] didn’t even read my article before reinventing the idea himself. He learned about it afterward and credited me in his paper. So my connection with the project is quite limited.” In 2013, Adam Back commented on this, mentioning that he introduced Satoshi to Wei Dai’s b-money after Satoshi reached out to him.

In his proposal, Dai is very outspoken regarding the motivation of his system. Citing Tim May’s ideas around crypto-anarchy, he writes that “in a crypto-anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary. It’s a community where the threat of violence is impotent because violence is impossible, and violence is impossible because its participants cannot be linked to their true names or physical locations.”

Dai goes on to describe a system where every participant maintains a separate database of how much money belongs to each user. Users are identified by pseudonyms (public keys), monetary units are created in relation to computational effort, money is transferred by signing messages, and contracts are executed by the protocol automatically. Describing—in spirit, but not in detail—how Bitcoin operates today.

He outlines five things that are necessary for such a system to function:

The creation of money
The transfer of money
The effecting of contracts
The conclusion of contracts
The enforcement of contracts

While b-money solves many of the problems that are inherent to electronic money, the problem described by Szabo in bit gold remains. Dai mentions this in his proposal as follows: “One of the more problematic parts in the b-money protocol is money creation. This part of the protocol requires that all of the account keepers decide and agree on the cost of particular computations. Unfortunately because computing technology tends to advance rapidly and not always publicly, this information may be unavailable, inaccurate, or outdated, all of which would cause serious problems for the protocol.”

Dai proposes a solution to this problem by describing a sub-protocol that is solely responsible for money creation. Participants would periodically agree upon how much money should be created, collectively working together in a market-driven cycle that consists of four steps: planning, bidding, computation, and creation. Since b-money was never implemented in the form proposed by Dai, it is unclear whether this elaborate money-creation scheme would have worked as intended.

RPOW—Reusable Proofs of Work (Hal Finney, 2004)

As the name suggests, Hal Finney found a way to make the proof-of-work tokens from Adam Back’s hashcash reusable.

Here is how it works, paraphrasing the original announcement by Hal Finney himself: The system receives hashcash as a proof-of-work (POW) token, and in exchange creates RSA-signed tokens which are called reusable proof-of-work (RPOW) tokens. RPOWs can then be transferred from person to person and exchanged for new RPOWs at each step. Each RPOW token can only be used once but since it gives birth to a new one, it is as though the same token can be handed from person to person.

Ownership in RPOW is transferred via trust-minimized servers.

In essence, a user can create RPOW tokens via the RPOW client software, which takes a proof-of-work string as generated by the Hashcash software invented by Adam Back. This string is signed by the user’s private key and subsequently registered by an RPOW server, recording that this token is belonging to the user’s public key. The user can then pass that token on to someone else by signing a “transfer order” to another user’s public key. The server then duly registers the token as belonging to the corresponding private key.

As is apparent by studying his writings, Hal Finney was inspired and building upon work by Nick Szabo, most notably his ideas around “bit gold” and digital collectibles. Discussing possible applications of RPOW, Hal writes: “Security researcher Nick Szabo has coined the term bit gold for information objects which are provably costly to create. He suggests that these could even serve as the foundation for a sort of payment system, playing the role in the informational world of gold in the physical world. RPOW would facilitate the use of POW tokens as a form of bit gold by allowing the tokens to be passed and exchanged from person to person.”¹⁵

Hal’s implementation was a practical solution to a problem inherent in proof-of-work tokens, namely that the POW tokens themselves don’t make very good money. POW tokens are just hashes—bits of information—that can be double-spent. With the concept of RPOW servers, Hal introduced central, but trust-minimized authorities that can cryptographically determine a chain of ownership. This allows proof-of-work tokens to be re-used, albeit in a limited, sequential way.

While the RPOW architecture is hierarchical, i.e. its clients rely on specialized servers, the trust users need to have in an RPOW server is minimized. This is possible because the RPOW server software is run on an IBM 4758 secure cryptographic coprocessor, a high-security tamper-resistant PCI board that cryptographically ensures that the software running on the server is the software that was published and audited. This makes any RPOW server a system whose security properties can be analyzed and evaluated by anyone. In other words, an RPOW server is a transparent server, which makes the RPOW system as a whole trust-minimized. Everyone knows the code that makes the system work, as well as the rules that are in place.

We know the source code. We know the rules.

Hal Finney

So, what exactly are the rules of the RPOW system? According to its inventor, they are as follows:¹⁶

No inflation
No back doors
Privacy protection

The “no inflation” rule has to be understood in terms of the constraints set up by the system itself, i.e. that any RPOW server will only create RPOW tokens equal in value to incoming POW and RPOW tokens. Since users can create new proof-of-work tokens via Adam Back’s hashcash, inflation in terms of new supply coming into the system can and will always happen.

“To enforce the no-inflation rule, the RPOW server must make sure that no POW or RPOW can be used more than once as part of an exchange. Each one is created, and then exchanged at the server for a new RPOW, and after that, the old one can never be used again. The RPOW server enforces this rule primarily by keeping a record of all of the RPOWs and POWs that it has seen in the past. Whenever one is offered for exchange, the RPOW server compares it against this database of previously-seen RPOWs. If it is on the list, this is an attempt to reuse the POW or RPOW, and the exchange request is rejected. If the POW or RPOW is not on the list, it is added to the list, and then the RPOW server will sign the bignum value supplied as part of the exchange, creating a new RPOW.”

The “no back doors” rule refers to the transparency of the system. Everyone can inspect how it works at all times, there are no hidden parts.

The “privacy protection” rule is an interesting one. Hal wrote at length about how privacy is an inherently desirable feature, advocating the use of Tor¹⁷ to connect to the RPOW servers and discussing both attack vectors (linkage attacks) and improvements such as the use of blind signatures. In his writings, he goes on to point out two additional things: (1) the “owner is the enemy”, and (2) the “programmer is the enemy”, reminding us that any system that facilitates the trust-minimized exchange of money needs to be set up and operate under an adversarial mindset.

Next to hashcash, RPOW was one of the systems that was actually implemented. However, probably because of the effort required to run RPOW servers, as well as a lack of incentives to do so, Finney’s reusable proof-of-work tokens never gained traction and the project was eventually discontinued.

Satoshi’s Breakthrough

I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them.

Satoshi Nakamoto

On February 11, 2009, Satoshi posted an announcement to the P2P Foundation forums. The P2P Foundation studies the impact of peer-to-peer technology and thought on society, describing itself as “The Foundation for Peer to Peer Alternatives.” Thus, it was a very fitting place to announce the invention of a peer-to-peer money like Bitcoin.

In his announcement, Satoshi describes Bitcoin as a “P2P e-cash system” that has “no central server or trusted parties” because “everything is based on crypto proof instead of trust.”

Satoshi's original announcement of Bitcoin

He identifies multiple problems with our current monetary system and the conventional currencies that are native to it:

trust in third parties
currency debasement by central banks
credit bubbles
fractional reserve banking
privacy
lack of micropayments due to overhead costs
middlemen

Just by glancing at this list, Bitcoin’s enormously ambitious scope becomes apparent. Satoshi didn’t set out to solve one problem. He set out to solve many problems at once. Amazingly, he got so many things right from the start that he was actually able to solve most of them. All he had to do was convince others that his solution actually worked.

Knowing his audience, he goes on to point out how similar trust-related issues were solved in the world of computer systems in general, i.e. how strong cryptography did away with having to trust system administrators with your data. Once your files are encrypted, you do not need to trust whoever has access to these files, since they would need your password to decrypt them. In other words: we moved from trusting humans to trusting mathematics. This is especially relevant in a peer-to-peer setting, because thanks to strong cryptography, you can exchange confidential data with others—including your future self—without having to rely on any middlemen.

It’s time we had the same thing for money.

Satoshi Nakamoto

To better understand Satoshi’s breakthrough, let’s recap what was possible before and where other systems fell short. The following is what was possible before Bitcoin:

Account creation via public-key cryptography
Unforgeable costly tokens via proof-of-work
Proving ownership via digital signatures
Passing on proof-of-work tokens via signature chains

And here is what wasn’t possible:

Preventing double-spending without a trusted third party
Limiting supply without a trusted third party

To Satoshi, it was obvious that any centrally controlled system will get shut down by governments. Thus, the system he wanted to build had one goal above all others: decentralization.

Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.

Satoshi Nakamoto

The above quote beautifully encapsulates why decentralization is so important: there are no heads to cut off, no CEOs to arrest, no leaders to blackmail or pressure, no single group of people to subpoena, no servers to shut down. In other words: decentralization maximizes survival.

A central point in any system makes it vulnerable and thus prone to attack. A sufficiently motivated attacker will find and exploit these points of failure. And when it comes to money, the state has all the motivation in the world to shut down a competing system. This—and only this—is why Bitcoin’s design is so intricate and complicated. Its incentive-driven architecture favors one thing above all else: survival. Because you would have to destroy all parts of it simultaneously, a radically decentralized system is extremely resilient to any kind of disruption.

While previous attempts—especially bit gold, b-money, and RPOW—were quite close to Bitcoin’s eventual design, all systems had at least one of the following flaws:

Central ownership registry required to prevent double-spending
Coin value dependent on a central authority
Controlled issuance only possible through a centralized body
Unstable proof-of-work function (computationally speaking)

Except for the last point, all of these flaws are flaws because they require a centralized body, exposing a head that could be cut off by governments. Satoshi’s genius was the removal of all heads, including his own.

Again, the essential problem for money in the digital realm boils down to two things: scarcity, and double-spending. While obviously related—you can’t have digital scarcity without solving the problem of double-spending - they aren’t exactly the same thing. Satoshi solved both of these problems at once, by using a peer-to-peer network as a non-central ledger, using a global timechain to synchronize state, and dynamically adjusting the puzzle difficulty to achieve cryptanalytical stability—making a predictable issuance possible.

Further, he combined the process of issuance, transfer, and verification, removing the need for any trusted third party. The genius of Bitcoin is that every node can verify everything for itself at all times. To paraphrase Hal Finney: “You know the source code. You know the rules.”

Satoshi was able to decentralize all the functions of Wei Dai’s b-money (creation and transfer of money; effecting, conclusion, and enforcement of contracts) while also solving the problems of Szabo’s “bit gold” (coin value dependent on a central authority; hash functions lack cryptanalytical stability). He did it by taking Hal Finney’s idea of reusable proof-of-work tokens to the next level, creating a digital asset that is both fungible and has a high unforgeable costliness. Like RPOW before it, the resulting system has no inflation, no back doors, and protects the privacy of its users.

It is helpful to look at the different functions of a financial- or banking-type system to understand why Bitcoin operates in the way it does. In essence, such a system needs to be able to do the following:

Account Creation: users need to be able to create accounts and authenticate themselves.
Record Ownership: the system needs to be able to record who owns what.
Prove Ownership: some sort of certification is required to confirm that a user actually owns the asset, so the user can prove this fact to himself and others.
Transfer Ownership: users need to be able to transfer ownership of assets.
Security: the system needs to make sure that ownership records, the computer network, and user data are safe.

In addition, when it comes to monetary systems, it is desirable to have the following:

Scarcity: the money should be hard to produce, i.e. it should have unforgeable costliness as described by Nick Szabo.
Controlled Issuance: new monetary units should be issued evenly and over a long period of time, allowing for organic distribution among participants.
Auditability: independent third parties should be able to audit the supply (as well as the security of the system).

Satoshi found a way to decentralize all of the functions listed above, using a mix of peer-to-peer technology, cryptography, probabilities, game theory, physics, and economic incentives. In other words: thanks to the universality of the laws of mathematics and physics, Satoshi was able to build a non-local system.

To be more concrete, let’s have a closer look at these features and how Bitcoin manages to implement them in a decentralized way:

Account Creation: Thanks to public-key cryptography, user account creation can be completely decentralized. Anyone, at any time, can create one or multiple keypairs to interact with the Bitcoin system. There are no sign-up forms, no central authorities to approve or deny applications, no servers in charge of logins. In essence, creating an account in Bitcoin is just a matter of generating a large random number. You can even flip a coin a couple of times, or roll a pair of dice, as long as you know what you’re doing (and your dice and coin flips are fair).
Record Ownership: In Bitcoin, every full node has a copy of the ownership records. This radical approach is a simple way to eliminate a centralized registry and optimize for survival: You can’t shut down the registry if everyone is the registry.
Prove Ownership: Like other systems before it, Bitcoin uses cryptographic signatures to prove ownership. If you have the private key to sign a message, you can prove that the related public key as well as the assets linked to this public key belong to you. No central authority that hands out ownership certificates required.
Transfer Ownership: Ownership is transferred via a chain of signatures, just like in Hal Finney’s RPOW system. Unlike in RPOW, no central servers are required, since the chain of ownership is hosted (and validated) by every full node.
Security: Bitcoin is secured in many different ways, all of which rely on cryptography in one form or another, which in turn relies on the power of ridiculously large numbers. The probability that someone will guess your private key or one of your addresses is virtually zero, as is the probability that someone will find the hash of a valid block without doing the necessary brute-force work. The combination of strong cryptography and the cumulative energy expended by miners secures both the assets of users, as well as the integrity of the network. The system itself has never been hacked, making it the most secure computer network of all time. Bitcoin can only be meaningfully attacked at the edges, i.e. private keys can be stolen from individual users or custodians.
Scarcity: Because Bitcoin is the first practical, non-central solution to the double-spend problem, it made digital scarcity possible for the first time. Satoshi could have chosen any terminal inflation rate, but he chose a terminal inflation rate of zero. The result: 21 million bitcoin, nothing more. What this means for Bitcoin and the world at large will be explored in Chapter 7.
Controlled Issuance: Because of Bitcoin’s difficulty adjustment, controlled issuance is possible in a decentralized fashion. The difficulty adjustment is what solves the problem of cryptanalytic instability, as Satoshi points out in the whitepaper: “To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.” During the network’s reward era, which will end approximately in the year 2140, new bitcoins will enter the economy with every valid block, i.e. roughly every ten minutes. Bitcoin’s supply was predetermined at its inception, and arguably, this is the most valuable property of Bitcoin. No other asset in existence has what Bitcoin has: an unchanging supply schedule that can not be argued with.

In short, mathematics allows for the decentralization of all the essential functions of the system and the laws of thermodynamics allow for strong security guarantees. Further, economic incentives and game theory are the glue that keeps everything together.

The result is a distributed system with no single point of failure. Users hold the crypto keys to their own money and transact directly with each other, with the help of the P2P network to check for double-spending.

Satoshi Nakamoto

Satoshi also realized that the only real-world asset that can be linked to a computer system in a trustless manner is energy, nothing else. Every other thing—no matter if it’s gold, paper certificates, real estate, or strawberries, re-introduces a trusted third party because of the inherent disconnect between the digital and the physical world. Someone has to make sure that the real-world assets and the digital representation of these assets—in essence, a list of things—remains up-to-date and in sync. This is what is known as the oracle problem, and proof-of-work solves it in an ingenious, roundabout way: by using energy, and thus physics, as the base truth. One can also think of the oracle problem as a variant of the GIGO principle: Garbage In, Garbage Out. You have to trust whoever is keeping the records that the records are correct. Phrased differently: you can never be sure that the data at hand represents reality, except if the reality is rooted in computation itself.

A Most Timely Idea

You can’t crush ideas by suppressing them. You can only crush them by ignoring them. By refusing to think, refusing to change. And that’s precisely what our society is doing!

Ursula K. Le Guin

As we can see by examining Bitcoin’s pre-history, double-spending and digital scarcity aren’t easy problems to solve. Satoshi’s breakthrough was to find a way to solve both of these problems practically, not academically. The first is solved by a globally shared timechain that is kept in sync via a competitive lottery, the second is solved by the difficulty adjustment as well as the block reward halving. Bitcoin uses the best ideas of its predecessors (digital signatures, reusable proof-of-work, peer-to-peer networks) and combines them in an ingenious way to create something completely new: a decentralized system without a single point of failure.

No single part of Bitcoin can be removed without destroying the whole. Without the timechain, there wouldn’t be a decentralized way to check for double-spending. Without the block reward halving, the bitcoin supply would expand indefinitely. Without the difficulty adjustment, the mining algorithm wouldn’t have cryptanalytic stability, making it trivial for miners to produce bitcoin more quickly. Many cypherpunks dreamed of digital cash. Satoshi took this idea further than anyone else before him, implementing a system that is virtually unstoppable. No matter what happens in the coming decades, the cat is out of the bag, and everyone will have to adjust to a world in which Bitcoin exists.

Bitcoin is an idea whose time has come. As more and more people, companies, and even nation-states move towards a Bitcoin Standard, the unstoppable gravity of Satoshi’s idea becomes ever more apparent. By implementing his idea, he proved that a practical solution to the problems that plagued digital money for decades — double-spending and digital scarcity — is possible. Releasing his software into the wild set in motion a multi-decade process that is driven by an extremely powerful incentive structure. An unstoppable idea, embodied in code. It is this incentive structure that drives Bitcoin’s survival. And with every passing day that Bitcoin refuses to die, humanity is one step closer to freeing money from the capture of the state. It will take some time for the world to come to grips with this most powerful idea. Amusingly, time is also the reason why Bitcoin works in the first place since the main insight Satoshi had is how to keep the time in a decentralized system. Many people thought that this problem was insoluble. Turns out that all that was missing was the right idea.

Found this valuable?

Give Value Back

⚡ s@ts.dergigi.com

Bitcoin Is An Idea is a chapter of my upcoming book 21 Ways.

The name cypherpunk is a playful combination of the words cipher (an algorithm that encrypts and/or decrypts a message) and cyberpunk (a science fiction subgenre spawned by the works of authors like Philip K. Dick, William Gibson, Ridley Scott, and many others). ↩
Internet Assigned Numbers Authority ↩
Timothy C. May, The Crypto Anarchist Manifesto ↩
Diffie and Hellman, 1976, New directions in cryptography (IEEE, PDF) ↩
Rivest, Shamir, Adleman, 1978, A method for obtaining digital signatures and public-key cryptosystems (ACM, PDF) ↩
Dwork and Naor, 1992, Pricing via Processing (PDF) ↩
“The hashcash CPU cost-function computes a token which can be used as a proof-of-work.” http://www.hashcash.org/papers/hashcash.pdf ↩
Hal Finney, RPOW Theory ↩
You can try this yourself using various online tools (e.g. DuckDuckGo) or by typing the following into a command line: echo -n 1:20:040806:foo::65f460d0726f420d:13a6b8 | sha1sum ↩
In some of his very early writings, e.g. this README file, Satoshi wrote Bitcoin as “BitCoin”, indicating that it was meant to be understood as two separate words. ↩
From the bit gold early incomplete whitepaper in which Szabo introduces the concept of unforgeable costly assets, linking the scarcity of certain goods to the costliness of their creation. ↩
https://nakamotoinstitute.org/shelling-out/ ↩
See his writings on Intrapolynomial Cryptography ↩
MicroMint was one of two micropayment schemes proposed by Ronald L. Rivest and Adi Shamir (the R and S in RSA). The second scheme was called PayWord. Both focused on efficient payments of very small amounts, extending previous works such as Millicent by Glassman et al. Again the idea is to use public-key cryptography and hashes in a clever way to produce coins: “A coin is a bit-string whose validity can be easily checked by anyone, but which is hard to produce. ↩
https://nakamotoinstitute.org/finney/rpow/index.html—See also Shelling Out: The Origins of Money ↩
https://nakamotoinstitute.org/finney/rpow/slides/slide010.html ↩
The Onion Router, torproject.org ↩

Seeing

Sun, 30 May 2021 00:00:00 +0000

Seeing is believing. We construct our reality based on our experiences. More often than not, what we do not experience is not part of our reality. What we can not see does not exist.

Seeing something, touching something, experiencing something is what makes this something real. It takes imagination to believe in things that you can not touch and can not see. It is irrational; it requires faith.

Of course, plenty of things exist that most of us would classify as real that we can’t see nor touch. Love. Gravity. Numbers. Your favorite song. A dream. But what makes these things real? How are they different from what we would call hallucinations, visions, phantasies, and delusions?

Each of us lives, dependent and bound by our individual knowledge and our awareness. All that is what we call reality, however, both knowledge and awareness are equivocal. One’s reality might be another’s illusion. We all live inside our own fantasies.

Itachi Uchiha

If something is more abstract, does it become more real or less so? I’m not sure. Are numbers less real than a pebble? Is beauty itself more real than a beautiful woman? What lasts longer? The abstract thing or its instantiation? What if an abstraction becomes reality? What if the basis of reality is pure abstraction in its core?

We can not describe our base reality without “imaginary” numbers that we dreamed up before discovering their usefulness in regards to describing quantum mechanics. Similarly, we can not even make sense of time and space without the most abstract of notions.

Any author who uses mathematics should always express in ordinary language the meaning of the assumptions he admits, as well as the significance of the results obtained. The more abstract his theory, the more imperative this obligation. In fact, mathematics are and can only be a tool to explore reality. In this exploration, mathematics do not constitute an end in itself, they are and can only be a means.

Maurice Allais

Does perception follow comprehension? Or is it the other way around? It seems to me that, unless expertly trained and willfully self-destructive, we do not perceive what we do not comprehend. We do not trust our eyes; we trust our beliefs. Seeing is believing, but only if our worldview is not endangered by our seeing.

The Responsibility of Adopting Bitcoin

Sun, 14 Mar 2021 00:00:00 +0000

There is a saying among bitcoiners, and it becomes more truthful and apparent as time goes on: You don’t change Bitcoin. Bitcoin changes you.

Why is that? At first, I wasn’t sure how to answer this question; I just knew it was true. The reasons behind it remained somewhat of a mystery to me. Yes, Bitcoin is incredibly resistant to change. And yes, sound money lowers your time preference. That is definitely a large part of it. There is also the historical tendency to get rich, so wealth and the economic freedom that comes with it might be another part.

Money, however, isn’t always a blessing. It tends to amplify both good and bad traits. It also has the power to corrupt, and it has the potential to drive people insane. If you aren’t careful, what started as sudden riches can soon turn into a power-drunk ego trip that ends in Bitcoin Derangement Syndrome.

There is plenty of writing on low time preference and wealth already, which is why I want to focus on the third thing that Bitcoin forces upon you: responsibility.

The Individual Is Sovereign

The whole idea of Bitcoin is to remove intermediaries from the equation. Trusted third parties are security holes, and unless we want to repeat past mistakes, it is our collective responsibility to eliminate these security holes wherever and whenever we can. Bitcoin allows for the elimination of trusted third parties because it loops itself into existence from the bottom up instead of being created from the top down. In Bitcoin, your self-sovereignty can be absolute.

Bitcoin emphasizes the sovereignty of the individual both in principle and in practice. It allows economic actors to store and exchange value freely, requiring nothing but a valid cryptographic signature. Group identity, gender, skin color, age, political or religious affiliation — all are irrelevant in the protocol’s eyes. If your transaction has a valid signature, Bitcoin will take you seriously. No matter if you are a person, a dog, or an attack helicopter.

Just like intersectionality is resolved by focusing on the individual, the problem of trusted third parties is resolved by focusing on individual nodes. Remove social and political identities, and the individual remains. Remove trusted third parties and external sources of truth, and the self-sovereign node remains. And just like human dignity is inviolable, the self-validating truth that your Bitcoin node represents is inviolable. If an external authority could interfere with your node’s truth, the whole point of Bitcoin would be moot.

Die Würde des Menschen ist unantastbar.

Artikel 1 des Grundgesetzes für die Bundesrepublik Deutschland

It all boils down to individual nodes. Consequently, it all boils down to the individuals operating these nodes.

Responsibility Is Programmed

There is a reason why bitcoiners speak of “the journey” down the rabbit hole. The only way to get into Bitcoin is to start small and improve incrementally. It is neither easy nor comfortable, but it is also necessary. You can’t do everything “correctly” on day one. The challenges are too large, the paradigm shifts too radical, the tradeoffs too many, and the issues too nuanced.

Consequently, my advice to friends and family remains the same: start stacking sats today. It might not be the perfect advice for everyone under all circumstances, but it is perfect in my eyes for the following reason alone: it forces you to take the first step, which is having some sats to your name.

Once you have acquired some bitcoin, you have skin in the game. And once you have skin in the game, you are on the path to become more self-sovereign. You are on track to take responsibility for your finances, for your savings, for your future, and, perhaps somewhat surprisingly, for the future of Bitcoin.

Sounds grandiose? Let me explain: you will learn that you don’t really own bitcoin unless you hold your own keys. You will learn that you can’t be sure that what you’re holding actually is bitcoin unless you validate your transactions with your own node. You will learn that Bitcoin is whatever you decide it to be, that the value of bitcoin does not come from without but from within, and that maximum utility in the world of Bitcoin entails the adoption of maximum responsibility.

The base reality of how the Bitcoin network operates, combined with the growing number of reports of this effect — a personal transformation brought about by the adoption of a Bitcoin Standard — makes me believe that it isn’t only the moon that is programmed, but the adoption of responsibility is too.

Because bitcoin is designed to pump forever, whatever skin you have in the game will soon grow to be a meaningful amount. As the purchasing power of your bitcoin stack grows, your incentive to become a first-class Bitcoin citizen will grow as well. You will want to learn how to do self-custody. You will want to learn how to run your own node.

It goes even beyond the mantras of “not your keys, not your bitcoin” and “not your node, not your rules.” It is in your best interest to support the network, either by running a node, contributing hash power, or indirectly by supporting bitcoin development. And here comes the kicker: running your own node means that you are participating in the network itself, which inevitably involves you in the process of defining what Bitcoin is. Since nobody can tell you what Bitcoin is, you have to decide what Bitcoin is for yourself, over and over again. The network is a growing, ever-changing organism, and the opt-in nature of protocol upgrades will repeatedly force the question of Bitcoin’s identity upon its participants.

What is Bitcoin? And what should it be? The lack of a central authority implies that answering these questions is your responsibility, in perpetuity. However, before you can dare to take on this responsibility, you must take the first step and start saving yourself.

Bitcoin Privacy: Best Practices

Sun, 14 Mar 2021 00:00:00 +0000

There is a sacred realm of privacy for every man and woman where he makes his choices and decisions — a realm of his own essential rights and liberties into which the law, generally speaking, must not intrude.

Geoffrey Fisher, Archbishop of Canterbury (1959)

Not too long ago the default mode of the internet was unencrypted plain text. Everyone was able to spy on everyone else and not too many people thought much about it. The global surveillance disclosures of 2013 changed that and today secure communication protocols and end-to-end encryption are becoming the norm.

Although Bitcoin is entering its teenage years, we are — metaphorically speaking — still in the plain text era of the orange coin. Bitcoin is radically transparent by default, but there are meaningful ways to protect your privacy. In this article we want to highlight some of these ways, discuss best practices, and give actionable advice for newcomers and bitcoiners alike.

Why Privacy Is Important

“Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.”

With these powerful words Eric Hughes opened his Cypherpunk’s Manifesto in 1993. The difference between privacy and secrecy is subtle, but important. Choosing to remain private does not imply that one has secrets or has something to hide. To illustrate this just realize that what you do on the toilet or in the bedroom is neither illegal nor a secret (in most cases), yet you close the door and pull the curtains.

Similarly, how much money you have and where you spend it is not necessarily a secret matter. It should, however, be a private one. Most would agree that your boss should not know how you choose to spend your salary.
The importance of privacy is recognized by many international bodies. From the American Declaration of the Rights and Duties of Man to the United Nations, it is recognized that privacy is a fundamental human right worldwide.

No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.

Article 12, United Nations Declaration of Human Rights

Bitcoin and Privacy

Although Bitcoin was often described as an anonymous method of payment by early proponents and by the media, it is anything but. Bitcoin is pseudonymous at best and as of today making sure that your pseudonymous bitcoin identities cannot be linked to your real-world identity proves difficult for most people.

Bitcoin is an open system. Its public ledger can be inspected and studied by everyone. Thus every transaction that is embedded in its proof-of-work chain will be exposed for as long as Bitcoin exists: eternity. Failing to follow privacy best practices now can potentially have negative repercussions in the future.

Privacy, like security, is a process and it is difficult, but not impossible. Tools continue to be developed to help preserve privacy while using Bitcoin and fortunately most of these tools become easier to use over time. Unfortunately no panacea exists. One has to remain aware of the tradeoffs and follow best practices as they evolve.

Privacy Best Practices

As with everything in Bitcoin, taking control of your privacy is a gradual, step-by-step process. Learning about and implementing these best practices takes patience and responsibility, so do not be discouraged if it seems overwhelming at first. Every step, no matter how small, is a step in the right direction.

The following are actionable steps you can take to increase your privacy:

Self-custody your coins
Do not reuse addresses
Minimize exposure to KYC (Know Your Customer)
Minimize exposure to third parties
Run your own node
Use the Lightning Network for small transactions
Do not use public block explorers
CoinJoin early and often

Self-custody your coins: Not your keys, not your bitcoin. If someone else is holding your bitcoin for you, they know everything there is to know about these coins: amounts, transaction histories, future transactions, etc. Taking self-custody of your coins is the first and most essential step.

Do not reuse addresses: Reusing addresses destroys the privacy of both the sender and the receiver. It should be avoided at all costs.

Minimize exposure to KYC: Linking your real-world identity to your bitcoin addresses is a necessary evil in most jurisdictions. While the effectiveness of these regulations is questionable, the implications for regular users are mostly negative as a multitude of data leaks have shown. If you choose to use KYC on- or off-ramps, make sure that you understand the relationship between yourself and the service in question. You are trusting this service with your personal data, including the future safety of this data. If you still earn fiat-denominated income, we recommend using one bitcoin-only service that allows you to execute automatic recurring buys on your behalf. Swan Bitcoin is such a service. If you want to skip KYC entirely, have a look at no-KYC only.

Minimize exposure to third parties: Trusted third parties are security holes. If you can rely on yourself instead of trusted third parties, you should.

Run your own node: Not your node, not your rules. Running your own node is essential to use Bitcoin in a private manner. Every interaction with the Bitcoin network is facilitated by a node. If you are not in control of this node, whatever you are doing is seen by the node you are interacting with. This means whoever is in control of the node is able to see what you are doing. This node guide is a great resource to get you started.

Use the Lightning Network for small transactions: The off-chain nature of the lightning network increases the transactional privacy of its users without having to jump through too many hoops. While it is still early, the absolutely reckless days of the lightning network are likely behind us. Using it for small- and medium-sized transactions can help improve both your privacy as well as your fee footprint.

Do not use public block explorers: Looking up addresses in public block explorers will link those addresses with your IP, which, in turn, can be linked to your real identity. Software packages like Umbrel and myNode make it easy to run your own block explorer. If you have to use a public block explorer, make sure to mask your IP by connecting to them via Tor, or at least use a VPN.

CoinJoin early and often: Because Bitcoin is forever, using transactional best practices such as collaborative CoinJoin transactions will ensure that your privacy is protected going forward. While CoinJoin transactions are nuanced, user-friendly software exists to help you create and automate these kinds of transactions. There is JoinMarket, which, thanks to projects like JoininBox, can be set up quite easily on your own node. Note that Swan offers the ability to auto-withdraw your bitcoin, allowing you to automate this process almost completely.

Conclusion

Everyone should strive to use bitcoin in a more private manner. Privacy is not secrecy. Privacy is a human right and we should all protect and exercise this right. It is hard to remove information from the internet; it is impossible to remove information from Bitcoin’s public ledger.

While far from perfect, tools exist today that make following privacy best practices easier. We have highlighted some of these tools and — as new improvements such as Taproot and Schnorr get activated — these tools, as well as the privacy guarantees of Bitcoin, will undoubtedly improve.

Bitcoin’s operation does not map nicely on to traditional concepts. Questions such as “who owns this money” or “where is it from” become hard to answer in most circumstances and absolutely meaningless in others.

Satoshi designed Bitcoin with privacy in mind. On the protocol level every bitcoin transaction is a “smelting” process leaving only heuristical breadcrumbs behind. The protocol does not care where the sats came from. Neither does it care about real-world identities or ownership. It only cares about the validity of signatures.

And as long as speech is free, signing a message — privately or not — must not be a crime.

Further Resources

This Month in Bitcoin Privacy by Janine
Bitcoin Privacy Guide by Bitcoin Q+A

This article first appeared on the Swan Blog and was co-authored by Matt Odell, an independent bitcoin and privacy advocate. Find his recommendations in regards to best practices on werunbitcoin.com.

Humility

Mon, 15 Feb 2021 00:00:00 +0000

I have a drinking bottle that I got a couple of years ago. I believe my sister gave it to me. It simply says: “What if you’re right, and they are wrong?”

Being right isn’t always a good thing. Sometimes you wish to be wrong. I certainly wish to be wrong on some things that I believe are in store for all of us, because these things will neither be easy nor pretty.

The good thing about trying to be right or wrong about the future is that the future isn’t set in stone. Sometimes even the past isn’t - at least it seems that way. We should rejoice in the fact that we can make things right, right now. We can right our previous wrongs and try to do the right thing right now so that the future will steer itself in the right direction.

Let us not be content to wait and see what will happen, but give us the determination to make the right things happen.

Peter Marshall

It is important to remind yourself that you might be wrong. Humility is the foundation of all virtues, they say. Even Confucius reminds us that “to acknowledge our incapacity is the way to be soon prepared to teach others; for from the moment that a man is no longer full of himself, nor puffed up with empty pride, whatever good he learns in the morning he practices before night.”

Bitcoin Is Time

Thu, 14 Jan 2021 00:00:00 +0000

One luminary clock against the sky
Proclaimed the time was neither wrong nor right.

Robert Frost, Acquainted with the Night (1928)

Time is still the great mystery to us. It is no more than a concept; we don’t know if it even exists…

Clifford D. Simak, Shakespeare’s Planet (1976)

Time is money, or so the saying goes. It follows that money is also time: a representation of the collective economic energy stored by humanity. However, the link between time and money is more intricate than it might seem at first. If money requires no time to create, it doesn’t work as money very well, or not for long. More profoundly, as we shall see, keeping track of things in the informational realm always implies keeping track of time.

As soon as money goes digital, we have to agree on a definition of time, and herein lies the whole problem. You might think telling the time is as easy as glancing at whatever clock is nearby, and you would be right when it comes to everyday tasks. But when it comes to synchronizing the state of a global, adversarial, distributed network, telling the time becomes an almost intractable problem. How do you tell the time if clocks can’t be trusted? How do you create the concept of a singular time if your system spans the galaxy? How do you measure time in a timeless realm? And what is time anyway?

To answer these questions, we will have to take a closer look at the concept of time itself and how Bitcoin makes up its own time: block time — more commonly known as block height. We will explore why the problem of timekeeping is intimately related to keeping records, why there is no absolute time in a decentralized system, and how Bitcoin uses causality and unpredictability to build its own sense of now.

Timekeeping devices have transformed civilizations more than once. As Lewis Mumford pointed out in 1934: “The clock, not the steam-engine, is the key-machine of the modern industrial age.” Today, it is again a timekeeping device that is transforming our civilization: a clock, not computers, is the true key-machine of the modern informational age. And this clock is Bitcoin.

Keeping Track of Things

Let the child learn to count things, thus getting the notion of number. These things are, for the purpose of counting, considered alike, and they may be single objects or groups.

David Eugene Smith, The Teaching of Elementary Mathematics (1900)

Very broadly speaking, there are two ways to keep track of things: physical tokens and ledgers. You can either use real-world artifacts directly, e.g., give someone a sea shell, a coin, or some other tangible thing, or you can replicate the state of the world by writing down what happened on a piece of paper.

Imagine you are a shepherd and want to make sure that your whole flock returned home. You can put a collar on each sheep, and as soon as a sheep returns home, you simply remove the collar and hang it up in your shed. If you have one hanger for every collar, you will know that every sheep returned safely as soon as all hangers are filled. Of course, you can also count them and keep a list. However, you will have to make sure to create a new list every time you start counting, and you will also have to make sure not to count a single sheep twice (or not at all).

Money is essentially a tool to keep track of who owes what to whom. Broadly speaking, everything we have used as money up to now falls into two categories: physical artifacts and informational lists. Or, to use more common parlance: tokens and ledgers.

It is important to realize the inherent difference of these categories, so let me point it out explicitly: The first method — a physical token — directly represents the state of things. The second one — a ledger — indirectly reflects the state of things. Each comes with advantages and disadvantages. For example, tokens are physical and distributed; ledgers are informational and centralized. Tokens are inherently trustless; ledgers are not.

In the digital realm — no matter how intensely marketing gurus try to convince you of the opposite — we can only use ledgers. It is an informational realm, not a physical one. Even if you call a certain kind of information a “token,” it is still a malleable piece of information, written down on a hard drive or some other medium that can hold information, effectively rendering it an informational record.

The ledger-like nature of all digital information is the root cause of the double-spend problem. Information never represents the state of the world directly. Further, the movement of information implies copying. Information exists in one place, and to “move” it, you have to copy it to another place and erase it at its origin. This problem doesn’t exist in the physical realm. In the physical realm, we can actually move things from A to B. The informational realm doesn’t have this property. If you want to “move” information from list A to list B, you have to copy it from A to B. There is no other way.

Another way to think about it is in terms of uniqueness. Physical tokens are unique composites of atoms whose assembly is not easily replicable. Pure information does not have this property. If you can read the information, you can also copy it perfectly. Practically speaking, it follows that physical tokens are unique, and digital tokens are not. I would even argue that “digital token” is a misnomer. A token might represent secret information, but it will never represent unique, singular, uncopyable information.

This difference in properties shows that there really is no way to “hand over” information. It is impossible to pass on a digital token like you would pass on a physical one since you can never be sure if the original owner destroyed the information on his end. Digital tokens, like all information, can only be spread, like an idea.

… if you have an apple and I have an apple, and we swap apples — we each end up with only one apple. But if you and I have an idea and we swap ideas — we each end up with two ideas.

Charles F. Brannan (1949)

Physical tokens — what we call physical bearer assets, or “cash” — are free from this dilemma. In the real world, if you hand me a coin, your coin is gone. There is no magical duplication of the coin, and the only way to give it to me is to physically hand it over. The laws of physics do not allow you to double-spend it.

While double-spending does exist in the non-digital realm — George Parker, a con artist who famously “double-spent” the Brooklyn Bridge and other landmarks comes to mind — it requires elaborate deception and gullible buyers. Not so in the digital realm.

In the digital realm, because we are always dealing with information, double-spending is an inherent problem. As everyone who ever copied a file or used copy-and-paste knows, information is something that you can copy perfectly, and it is not bound to the medium that hosts it. If you have a digital photograph, for example, you can copy it a million times, store some copies on a USB stick, and send it to thousands of different people. Perfect copies are possible because information allows for flawless error correction, which eliminates degradation. And to top things off, there is virtually no cost to duplication and no way to tell what the original was.

Again: when it comes to information, copying is all there is. There simply is no way to move digital information from A to B. Information is always copied from A to B, and if the copying process was successful, the original copy of A is deleted. This is why the double-spending problem is so tricky. Absent of a central authority, there is no way to move anything from A to B in a trustless manner. You always have to trust that the original will be deleted. A natural side-effect is that, when it comes to digital information, it is impossible to tell how many copies are in existence and where these copies might be.

Because of this, using digital “tokens” as money can not and will never work. Since tokens derive their reliability from being hard to reproduce as a result of their unique physical construction, this advantage disappears in the digital realm. In the digital realm, tokens cannot be trusted. As a result of the nature of information’s intrinsic properties, the only viable format for digital money is not a token but a ledger — which brings us to the problem of time.

Tokens Are Timeless, Ledgers Are Not

For the things seen are temporary, but the things unseen are everlasting.

Paul of Tarsus, Corinthians 4:18b

When it comes to physical tokens, the time of a transaction does not matter. You either have the coins in your pocket, or you don’t; you can either spend them, or you can’t. The simple act of possession is the only prerequisite for spending. The laws of nature take care of the rest. In that sense, physical tokens are trustless and timeless.

When it comes to ledgers, physical possession falls to the wayside. Whoever is in control of the ledger needs to make sure that things are in order. What is otherwise given by physical laws, namely that you can’t spend money that you don’t have and you can’t spend money that you have already spent previously, has to be enforced by man-made rules. It is these rules that govern the orderly operation and maintenance of a ledger, not physical laws.

Moving from physical laws to man-made rules is the crux of the matter. Man-made rules can be bent and broken, physical laws not so much. For example, you can’t simply “make up” a physical gold coin. You have to dig it out of the ground. You can, however, absolutely make up a gold coin on paper. To do this, you simply add an entry to the ledger and give yourself a couple of coins. Or, in the case of central banks, simply add a couple trillion with a few computer keystrokes. (Fancy financial people call this “Rehypothecation,” “Fractional Reserve Banking,” or “Quantitative Easing” — but don’t be fooled, it’s all the same: making up money.)

To keep ledgers and those who manipulate them honest, regular, independent audits are required. The ability to account for every single entry in a ledger is not a luxury. Auditors need to be able to go over the books — backward in time — to keep ledgers honest and functioning. Without reliable timestamps, verifying the internal consistency of a ledger is impossible. A mechanism to establish an unambiguous order is essential.

Without an absolute sense of time, there is no way to have a defined order of transaction. And without a defined order of transactions, the rules of a ledger can not be followed. How else can you make sure how much money you actually have? How else can you make sure that things are in order?

The distinction between tokens and ledgers highlights the necessity for keeping track of time. In the physical realm, coins are timeless artifacts that can be exchanged without oversight. In the digital realm, coinstamping requires timestamping.

Centralized Coinstamping

Time: a great engraver, or eraser.

Yahia Lababidi (b. 1973)

The common way to solve the double-spending problem — the problem of making sure that a digital transfer only happens once — is to have a central list of transactions. Once you have a central list of transactions, you have a single ledger that can act as the sole source of truth. Solving the double-spending problem is as easy as going through the list and making sure that everything adds up correctly. This is how PayPal, Venmo, Alipay, and all the banks of this world — including central banks — solve the double-spending problem: via central authority.

The problem of course is the payee can’t verify that one of the owners did not double-spend the coin. A common solution is to introduce a trusted central authority, or mint, that checks every transaction for double-spending. […] The problem with this solution is that the fate of the entire money system depends on the company running the mint, with every transaction having to go through them, just like a bank.

Satoshi Nakamoto (2009)

It is worth pointing out that Satoshi didn’t manage to make information non-copyable. Every part of bitcoin — its source code, the ledger, your private key — can be copied. All of it can be duplicated and tampered with. However, Satoshi managed to build a system that makes rule-breaking copies completely and utterly useless. The Bitcoin network performs an intricate dance to decide which copies are useful and which aren’t, and it is this dance that brings scarcity into the digital realm. And like with every dance, a temporal measuring stick is required to dictate the rhythm.

Even a centralized ledger can only solve the double-spending problem if it has a consistent way to keep track of time. You always need to know who gave how much to whom and, most importantly: when. In the realm of information, there is no coin-stamping without time-stamping.

It must be stressed that the impossibility of associating events with points in time in distributed systems was the unsolved problem that precluded a decentralized ledger from ever being possible until Satoshi Nakamoto invented a solution.

Gregory Trubetskoy (2018)

Decentralized Time

Time brings all things to pass.

Aeschylus (525 BC – 456 BC)

Time and order have a very intimate relationship. As Leslie Lamport pointed out in his 1978 paper Time, Clocks, and the Ordering of Events in a Distributed System: “The concept of time is fundamental to our way of thinking. It is derived from the more basic concept of the order in which events occur.” Absent a central point of coordination, seemingly intuitive notions of “before,” “after,” and “simultaneously” break down. In the words of Lamport: “the concept of ‘happening before’ defines an invariant partial ordering of the events in a distributed multiprocess system.”

Phrased differently: Who should be in charge of time if putting someone in charge is not allowed? How can you have a reliable clock if there is no central frame of reference?

You might think that solving this problem is easy because everyone could just use their own clock. This only works if everyone’s clock is accurate, and, more importantly, everyone plays nice. In an adversarial system, relying on individual clocks would be a disaster. And, because of relativity, it does not work consistently across space.

As a thought experiment, imagine how you could cheat the system if everyone was in charge of keeping the time for themselves. You could pretend that the transaction you’re sending now is actually from yesterday — it just got delayed for some reason — thus, you would still have all the money that you’ve spent today. Because of the asynchronous communication that is inherent in every decentralized system, this scenario is more than a theoretical thought experiment. Messages do indeed get delayed, timestamps are inaccurate, and thanks to relativistic effects and the natural speed limit of our universe, it is anything but easy to tell apart the order of things absent of a central authority or observer.

Who’s there? Knock knock.

An Asynchronous Joke

To better illustrate the impossibility of the problem, let’s look at a concrete example. Imagine that you and your business partner both have access to your company bank account. You do business all over the world, so your bank account is in Switzerland, you are in New York, and your business partner is in Sydney. For you, it is January 3^rd^, and you are enjoying a beautiful Sunday evening at your hotel. For her, it’s Monday morning already, so she decides to buy breakfast using the debit card of your shared bank account. The cost is $27. The available balance is $615. The local time is 8:21 am.

At the same time, you are about to pay for your stay with another debit card linked to the same bank account. The cost is $599. The available balance is $615. The local time is 5:21 pm.

So it comes to be that — at exactly the same moment — you both swipe the card. What happens? (Dear physicists, please excuse my use of “the same moment” — we will ignore relativistic effects and the fact that there is no absolute time in our universe for now. We will also ignore that the concept of synchronous events doesn’t really exist. Bitcoin is complicated enough as it is!)

The central ledger at your bank will probably receive one transaction before the other one, so one of you will be lucky, the other not so much. If the transactions happen to arrive in the same tick — let’s say in the same millisecond — the bank would have to decide who gets to spend the money.

Now, what would happen if there was no bank? Who decides who was the first one to swipe? What if it wasn’t only you two, but hundreds or even thousands of people coordinating? What if you didn’t trust those people? What if some of those people are trying to cheat, e.g., by setting their clocks back so that it looks like they spent the money a couple of minutes earlier?

A time-related tool [is] needed to establish a canonical ordering and to enforce a unique history in the absence of any central coordinator.

Giacomo Zucco, Discovering Bitcoin (2019)

This problem is precisely why all previous attempts of digital cash required a centralized registry. You always had to trust someone to correctly identify the order of things. A centralized party was required to keep the time.

Bitcoin solves this problem by re-inventing time itself. It says no to seconds and yes to blocks.

Keeping the Time, One Block at a Time

Time’s glory is to calm contending kings,
To unmask falsehood and bring truth to light,
To stamp the seal of time in aged things,
To wake the morn and sentinel the night,
To wrong the wronger till he render right;

William Shakespeare, The Rape of Lucrece (1594)

All clocks rely on periodic processes, something that we might call a “tick.” The familiar tick-tock of a grandfather’s clock is, in essence, the same as the molecular-atomic buzzing of our modern Quartz and Caesium clocks. Something swings — or oscillates — and we simply count these swings until it adds up to a minute or a second.

For large pendulum clocks, these swings are long and easy to see. For smaller and more specialized clocks, special equipment is required. The frequency of a clock — how often it ticks — depends on its use-case.

Most clocks have a fixed frequency. After all, we want to know the time precisely. There are, however, clocks that have a variable frequency. A metronome, for example, has a variable frequency that you can set before you make it tick. While a metronome keeps its pace constant once it is set, Bitcoin’s time varies for each tick because its internal mechanism is probabilistic. The purpose, however, is all the same: keep the music alive, so the dance can continue.

Clock	Tick Frequency
Grandfather’s clock	~0.5 Hz
Metronome	~0.67 Hz to ~4.67 Hz
Quartz watch	32768 Hz
Caesium-133 atomic clock	9,192,631,770 Hz
Bitcoin	1 block (0.00000192901 Hz* to ∞ Hz**)

* first block (6 days)
** timestamps between blocks can show a negative delta

The fact that Bitcoin is a clock is hiding in plain sight. Indeed, Satoshi points out that the Bitcoin network as a whole acts as a clock, or, in his words: a distributed timestamp server.

In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions.

Satoshi Nakamoto (2009)

That timestamping was the root problem to be solved is also apparent by examining the reference at the end of the Bitcoin whitepaper. Out of the eight references in total, three are about timestamping:

How to time-stamp a digital document by S. Haber, W.S. Stornetta (1991)
Improving the efficiency and reliability of digital time-stamping by D. Bayer, S. Haber, W.S. Stornetta (1992)
Design of a secure timestamping service with minimal trust requirements by H. Massias, X.S. Avila, and J.-J. Quisquater (May 1999)

As Haber and Stornetta outlined in 1991, digital time-stamping is about computationally practical procedures that make it infeasible for a user — or an adversary, for that matter — to either back-date or forward-date a digital document. Contrary to physical documents, digital documents are easy to tamper with, and the change doesn’t necessarily leave any tell-tale signs on the physical medium itself. In the digital realm, forgeries and manipulations can be perfect.

The malleable nature of information makes time-stamping digital documents an elaborate and sophisticated process. Naive solutions do not work. Take a text document, for example. You can’t simply add the date at the end of the document since everyone — including yourself — could simply change the date in the future. You could also make up any date in the first place.

Time is a Causal Chain

In an extreme view, the world can be seen as only connections, nothing else.

Tim Berners-Lee, Weaving the Web (1999)

Making up dates is a general problem, even in the non-digital realm. What is known in the kidnapping world as “Authentication by Newspaper” is a general solution to the problem of arbitrary timestamps.

Proof of Time

This works because a newspaper is hard to fake and easy to verify. It is hard to fake because today’s front page refers to yesterday’s events, events that could not have been predicted by the kidnapper if the picture would be weeks old. By proxy of these events, the picture is proof that the hostage was still alive on the day the newspaper came out.

This method highlights one of the key concepts when it comes to time: causality. The arrow of time describes the causal relationship of events. No causality, no time. Causality is also the reason why cryptographic hash functions are so crucial when it comes to timestamping documents in cyberspace: they introduce a causal relationship. Since it is practically impossible to create a valid cryptographic hash without having the document in the first place, a causal relationship between the document and the hash is introduced: the data in question existed first, the hash was generated later. In other words: without the computational irreversibility of one-way functions, there would be no causality in cyberspace.

A before B

With this causal building block in place, one can come up with schemes that create a chain of events, causally linking A to B to C and so on. In that sense, secure digital timestamping moves us from a timeless place in the ether into the realm of digital history.

Causality fixes events in time. If an event was determined by certain earlier events, and determines certain subsequent events, then the event is sandwiched securely into its place in history.

Bayer, Haber, Stornetta (1992)

It goes without saying that causality is of the utmost importance when it comes to economic calculations. And since a ledger is nothing but the embodiment of economic calculations of multiple cooperating participants, causality is essential for every ledger.

We need a system for participants to agree on a single history […]. The solution we propose begins with a timestamp server.

Satoshi Nakamoto (2009)

It is fascinating that all of the puzzle pieces that make Bitcoin work did already exist. As early as 1991, Haber and Stornetta introduced two schemes that make it “difficult or impossible to produce false time-stamps.” The first relies on a trusted third party; the second, more elaborate “distributed trust” scheme, does not. The authors even identified the inherent problems of trusting a causal chain of events and what would be required to rewrite history. In their words, “the only possible spoof is to prepare a fake chain of time-stamps, long enough to exhaust the most suspicious challenger that one anticipates.” A similar attack vector exists in Bitcoin today, in the form of a 51% attack (more on that in a later chapter).

One year later, Bayer, Haber, and Stornetta built upon their previous work and proposed to use trees instead of simple linked lists to tie events together. What we know as Merkle Trees today are simply efficient data structures to create a hash from multiple hashes deterministically. For timestamping, this means that you can efficiently bundle multiple events into one “tick.” In the same paper, the authors propose that the distributed trust model introduced in 1991 could be improved by carrying out a recurring “world championship tournament” to determine a single “winner” who widely publishes the resulting hash somewhere public, like a newspaper. Sounds familiar?

As we shall see, it turns out that newspapers are also an excellent way to think about the second ingredient of time: unpredictability.

Causality and Unpredictability

Time is not a reality [hupostasis], but a concept [noêma] or a measure [metron]…

Antiphon the Sophist, On Truth (3rd century AD)

While causality is essential, it is not sufficient. We also need unpredictability for time to flow. In the physical realm, we observe natural processes to describe the flow of time. We observe a general increase in entropy and call that the arrow of time. Even though the laws of nature seem to be oblivious in regards to the direction of this arrow in most cases, certain things can’t be undone, practically speaking. You can’t unscramble an egg, as they say.

Similarly, entropy-increasing functions are required to establish an arrow of time in the digital realm. Just like it is practically impossible to unscramble an egg, it is practically impossible to unscramble a SHA256 hash or cryptographic signature.

Without this increase in entropy, we could go forward and backward in time willy-nilly. The sequence of Fibonacci Numbers, for example, is causal but not entropic. Every number in the sequence is caused by the two numbers that came before it. In that sense, it is a causal chain. However, it is not useful to tell the time because it is entirely predictable. In the same way that a kidnapper can’t simply stand in front of a calendar that shows the current date, we can’t use predictable processes as proof of time. We always have to rely on something that can’t be predicted in advance, like the front page of today’s newspaper.

Bitcoin relies upon two sources of unpredictability: transactions and proof-of-work. Just like nobody can predict what tomorrow’s newspaper will look like, nobody can predict what the next Bitcoin block will look like. You can’t predict what transactions are going to be included because you can’t predict what transactions are going to be broadcast in the future. And, more importantly, you can’t predict who will find the solution to the current proof-of-work puzzle and what this solution will be.

In contrast to the kidnapper’s newspaper, however, proof-of-work is physically linked to what happened directly. It is not just a record of an event — it is the event itself. It is the probabilistic directness of proof-of-work that removes trust from the equation. The only way to find a valid proof-of-work is by making a lot of guesses, and making a single guess takes a little bit of time. The probabilistic sum of these guesses is what builds up the timechain that is Bitcoin.

By utilizing the causality of hash-chains and the unpredictability of proof-of-work, the Bitcoin network provides a mechanism for establishing an indisputable history of events witnessed. Without causality, what came before and what came after is impossible to tease apart. Without unpredictability, causality is meaningless.

What is intuitively understood by every kidnapper was explicitly pointed out by Bayer, Haber, and Stornetta in 1992: “To establish that a document was created after a given moment in time, it is necessary to report events that could not have been predicted before they happened.”

Proof of Publication

It is the combination of causality and unpredictability that allows the creation of an artificial “now” in the otherwise timeless digital realm. As Bayer, Haber, and Stornetta point out in their 1991 paper: “the sequence of clients requesting time-stamps and the hashes they submit cannot be known in advance. So if we include bits from the previous sequence of client requests in the signed certificate, then we know that the time-stamp occurred after these requests. […] But the requirement of including bits from previous documents in the certificate also can be used to solve the problem of constraining the time in the other direction, because the time-stamping company cannot issue later certificates unless it has the current request in hand.”

All the puzzle pieces were already there. What Satoshi managed to do is put them together in a way that removes the “time-stamping company” from the equation.

Proof of Time

Causa latet: vis est notissima.
The cause is hidden, but the result is known.

Ovid, Metamorphoses, IV. 287 (8 AD)

Let us recapitulate: to use money in the digital realm, we have to rely on ledgers. To make ledgers reliable, unambiguous order is required. To establish order, timestamps are necessary. Thus, if we want to have trustless money in the digital realm, we must remove any entity that creates and manages timestamps and any single entity that is in charge of time itself.

It took a genius like Satoshi Nakamoto to realize the solution: “To implement a distributed timestamp server on a peer-to-peer basis, we will need to use a proof-of-work system similar to Adam Back’s Hashcash.”

We need to use a proof-of-work system because we need something that is native to the digital realm. Once you understand that the digital realm is informational in nature, the obvious conclusion is that computation is all we have. If your world is made of data, manipulation of data is all there is.

Proof-of-work works in a peer-to-peer setting because it is trustless, and it is trustless because it is disconnected from all external inputs — such as the readings of clocks (or newspapers, for that matter). It relies on one thing and one thing only: computation requires work, and in our universe, work requires energy and time.

Bridging Times

I know it works for me.
As we cross the bridge — the burning bridge —
With flames behind us,
We front the line.
It’s you and me, baby, against the world.

Kate Bush, Burning Bridge (1985)

Without proof-of-work, one would always run into the Oracle problem because the physical realm and the informational realm are eternally disconnected. The markings on your list of sheep aren’t your sheep, the map is not the territory, and whatever was written in yesterday’s newspaper isn’t necessarily what happened in the real world. In the same manner, just because you use a real-world clock to write down a timestamp doesn’t mean that this is actually what the time was.

Put bluntly, there simply is no way to trust that data represents reality, except if the reality in question is inherent in the data itself. The brilliant thing about Bitcoin’s difficulty-adjusted proof-of-work is that it creates its own reality, along with its own space and time.

Proof-of-work provides a direct connection between the digital realm and the physical realm. More profoundly, it is the only connection that can be established in a trustless manner. Everything else will always rely on external inputs.

The difficulty to mine a new Bitcoin block is adjusted to make sure that the thin thread between Bitcoin’s time and our time remains intact. Like clockwork, the mining difficulty readjusts every 2016 ticks. The goal of this readjustment is to keep the average time between ticks at ten minutes. It is these ten minutes that maintain a stable connection between the physical and the informational realm. Consequently, a sense of human time is required to readjust the ticks of the Bitcoin clock. A purely block-based readjustment wouldn’t work since it would be completely disconnected from our human world, and the whole purpose of the readjustment is to stop us ingenious humans from finding blocks too fast (or too slow).

As Einstein has shown us, time is not a static thing. There is no such thing as a universal time we could rely upon. Time is relative, and simultaneity is nonexistent. This fact alone makes all timestamps — especially across large distances — inherently unreliable, even without adversarial actors. (This is why timestamps of GPS satellites have to be adjusted constantly, by the way.)

For Bitcoin, the fact that our human timestamps are imprecise doesn’t matter too much. It also doesn’t matter that we have no absolute reference frame in the first place. They only have to be precise enough to calculate a somewhat reliable average across 2016 blocks. To guarantee that, a block’s “meatspace” timestamp is only accepted if it fulfills two criteria:

The timestamp has to be greater than the median timestamp of the previous 11 blocks.
The timestamp has to be less than the network-adjusted time plus two hours. (The “network-adjusted time” is simply the median of the timestamps returned by all nodes connected to you.)

In other words, the difficulty-adjustment is about keeping a constant time, not a constant level of security, difficulty, or energy expenditure. This is ingenious because good money has to be costly in time, not energy. Linking money to energy alone is not sufficient to produce absolute scarcity since every improvement in energy generation would allow us to create more money. Time is the only thing we will never be able to make more of. It is The Ultimate Resource, as Julian Simon points out. This makes Bitcoin the ultimate form of money because its issuance is directly linked to the ultimate resource of our universe: time.

The difficulty adjustment is essential because, without it, the internal clock of Bitcoin would tend to go faster and faster as more miners join the network or the efficiency of mining devices improves. We would quickly run into the coordination problem that Bitcoin sets out to solve. As soon as the block time falls below a certain threshold, say, 50 milliseconds, it would be impossible to agree on a shared state, even in theory. It takes light around 66 milliseconds to travel from one side of the earth to the other. Thus, even if our computers and routers were perfect, we would be back at square one: given two events, it would be futile to tell which event happened before and which event happened after. Without a periodic adjustment of Bitcoin’s ticks, we would run into the hopeless problem of solving the coordination problem faster than the speed of light. Time is also at the root of the problem of cryptographic instability, which was outlined in Chapter 1. Cryptography works because of an asymmetry in time: it takes a short time to build a cryptographic wall and a long time to break it down — unless you have a key.

Thus, in some sense, proof-of-work — and the difficulty adjustment that goes along with it — artificially slows down time, at least from the perspective of the Bitcoin network. In other words: Bitcoin enforces an internal rhythm whose low frequency allows ample buffer for the latency of communications between peers. Every 2016 blocks, Bitcoin’s internal clock readjusts, so that — on average — only one valid block will be found every 10 minutes.

From an outside perspective, Bitcoin funnels the chaotic mess of globally broadcast asynchronous messages into a parallel universe, restricted by its own rules and its own sense of space and time. Transactions in the mempool are timeless from the point-of-view of the Bitcoin network. Only when a transaction is included in a valid block does it get assigned a time: the number of the block it is included in.

BitCoin v0.01 ALPHA (2009)

It is hard to overstate how elegant a solution this is. Once you are able to create your own definition of time, deciphering what came before and what came after is trivial. In turn, agreeing on what happened, in what order, and, consequently, who owes what to whom, becomes trivial as well.

The difficulty adjustment makes sure that the ticks of Bitcoin’s internal metronome are somewhat constant. It is the conductor of the Bitcoin orchestra. It is what keeps the music alive.

But why can we rely on work in the first place? The answer is threefold. We can rely on it because computation requires work, work requires time, and the work in question — guessing random numbers — can not be done efficiently.

Probabilistic Time

Time forks perpetually toward innumerable futures.

Jorge Luis Borges, The Garden of Forking Paths (1941)

Finding a valid nonce for a Bitcoin block is a guessing game. It is very much like rolling a die, or flipping a coin, or spinning a roulette wheel. You are, in essence, trying to find a beyond-astronomically large random number. There is no progress toward finding a solution. You either hit the jackpot, or you don’t.

Every time you flip a coin, the chance of it coming up heads or tails is 50% — even if you flipped it twenty times before, and it came up heads every time. Similarly, every time you wait for a bitcoin block to come in, the chance that it will be found this second is ~0.16%. It doesn’t matter when the last block was found. The approximate waiting time for the next block is always the same: ~10 minutes.

It follows that every individual tick of this clock is unpredictable. Relative to our human clocks, this clock appears to be spontaneous and imprecise. This is irrelevant, as Gregory Trubetskoy points out: “It doesn’t matter that this clock is imprecise. What matters is that it is the same clock for everyone and that the state of the chain can be tied unambiguously to the ticks of this clock.” Bitcoin’s clock might be probabilistic, but it isn’t illusory.

Time is an illusion,
lunchtime doubly so.

Douglas Adams (1979)

The present moment, however, can absolutely be an illusion in Bitcoin. Since there is no central authority in the network, strange situations can arise. While unlikely, it is possible that two valid blocks are found at the same time (again: apologies to all physicists), which will make the clock tick forward in two different places at once. However, since the two different blocks will very likely differ in their content, they will contain two different histories, both equally valid.

This is known as a chain split and is a natural process of Nakamoto consensus. Like a flock of birds that briefly splits in two only to merge again, nodes on the Bitcoin network will eventually converge to a shared history after some time, thanks to the probabilistic nature of guessing.

Nakamoto consensus simply states that the correct history is to be found in the heaviest chain, i.e., the chain with the most amount of proof-of-work embedded in it. Thus, if we have two histories A and B, some miners will try to build upon history A, others will try to build upon history B. As soon as one of them finds the next valid block, the other group is programmed to accept that they were on the wrong side of history and switch over to the heaviest chain — the chain that represents what actually happened, by definition. In Bitcoin, history is truly written by the victors.

The payee needs proof that at the time of each transaction, the majority of nodes agreed it was the first received. […] When there are multiple double-spent versions of the same transaction, one and only one will become valid. The receiver of a payment must wait an hour or so before believing that it’s valid. The network will resolve any possible double-spend races by then.

Satoshi Nakamoto (2009)

In this simple statement lies the secret of the distributed coordination problem. This is how Satoshi solved the problem of the “simultaneous payment” our fictitious business partners encountered previously. He solved it once and for all, relativistic effects be damned!

Because of this probabilistic nature of Bitcoin’s clock, the present moment — what we call the chain tip — is always uncertain. The past — blocks buried below the chain tip — is ever more certain.

The more thorough the understanding needed, the further back in time one must go.

Gordon Clark, A Christian View of Men and Things, p. 58. (1951)

Consequently, the Bitcoin clock might rewind from time to time, for some peers, for a tick or two. If your chain tip — the present moment — happens to lose to a competing chain tip, your clock will first rewind and then jump forward, overriding the last few ticks that you thought were history already. If your clock is probabilistic, your understanding of the past has to be too.

Tick tock tick tock tick — what is the time?
Tick tock tick tock… it ends in c619.
Are you sure this is fine? Are we probably late?
Absolutes do not matter: before nine there comes eight.
The clock isn’t exact; it sometimes goes in reverse.
Exact time implies center; that’s the root of this curse!
Yet this clock keeps on ticking, tock-tick and tick-tock,
there’s no profit in tricking; just tick-tock and next block.

A Funny Little Rhyme on Bitcoin and Time (2020)

Conclusion

Time is still one of the great mysteries in physics, one that calls into question the very definition of what physics is.

Jorge Cham and Daniel Whiteson: We Have No Idea: A Guide to the Unknown Universe, pp. 117 – 118 (2017)

Keeping track of things in the informational realm implies keeping track of a sequence of events, which in turn requires keeping track of time. Keeping track of time requires agreeing on a “now” — a moment in time that eternally links the settled past with the uncertain future. In Bitcoin, this “now” is the tip of the heaviest proof-of-work chain.

Two building blocks are essential for the structure of time: causal links and unpredictable events. Causal links are required to define a past, and unpredictable events are required to build a future. If the sequence of events would be predictable, it would be possible to skip ahead. If the individual steps of the sequence aren’t linked, it would be trivial to change the past. Because of its internal sense of time, it is insanely difficult to cheat Bitcoin. One would have to rewrite the past or predict the future. Bitcoin’s timechain prevents both.

Viewing Bitcoin through the lens of time should make clear that the “block chain” — the data structure that causally links multiple events together — is not the main innovation. It is not even a new idea, as is evident by studying the timestamp literature of the past.

A blockchain is a chain of blocks.

Peter Todd

What is a new idea — what Satoshi figured out — is how to independently agree upon a history of events without central coordination. He found a way to implement a decentralised timestamping scheme that (a) doesn’t require a time-stamping company or server, (b) doesn’t require a newspaper or any other physical medium as proof, and (c) can keep the ticks more-or-less constant, even when operating in an environment of ever-faster CPU clock times.

Timekeeping requires causality, unpredictability, and coordination. In Bitcoin, causality is provided by one-way functions: the cryptographic hash functions and digital signatures that are at the core of the protocol. Unpredictability is provided by both the proof-of-work puzzle as well as the interaction with other peers: you can’t know in advance what others are doing, and you can’t know in advance what the solution to the proof-of-work puzzle will be. Coordination is made possible by the difficulty adjustment, the magic sauce that links Bitcoin’s time to ours. Without this bridge between the physical and the informational realm, it would be impossible to agree on a time by relying on nothing but data.

Bitcoin is time in more ways than one. Its units are stored time because they are money, and its network is time because it is a decentralized clock. The relentless beating of this clock is what gives rise to all the magical properties of Bitcoin. Without it, Bitcoin’s intricate dance would fall apart. But with it, everyone on earth has access to something truly marvelous: Magic Internet Money.

Found this valuable?

Give Value Back

⚡ s@ts.dergigi.com

Bitcoin Is Time is a chapter of my upcoming book 21 Ways.

Creation

Mon, 23 Nov 2020 00:00:00 +0000

There is creation, and there is death. I realize more and more that if I’m not creating, I’m dying. Slowly. On the inside. But, for whatever reason, it is still almost impossible for me to create as much as I would love to. I don’t know why. Maybe because it’s hard.

Consumption is easy. Creation is not. I want to be active, not reactive. I want to produce, not consume. So here is my pledge for this year, and the next, and all the years after that. Create. At all costs. No more excuses. No more shallowness. No more putting it off. Less input. More output.

I love photography. I love writing. I enjoy building things. I will do it all. There is creation, and there is death.

What Is 21ism?

Thu, 05 Nov 2020 00:00:00 +0000

Morpheus: I imagine that right now, you're feeling a bit like Alice. Hmm? Tumbling down the rabbit hole?

Neo: You could say that.

Morpheus: I see it in your eyes. You have the look of a man who accepts what he sees because he is expecting to wake up. Ironically, that's not far from the truth. Do you believe in fate, Neo?

Neo: No.

Morpheus: Why not?

Neo: Because I don't like the idea that I'm not in control of my life.

Morpheus: I know exactly what you mean. Let me tell you why you're here. You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about?

I can only repeat what I’ve said before: All of this sounds crazy, and yet it is happening. People are waking up. Across the globe sovereign individuals are rising. There is an invisible revolution happening in cyberspace, and most of the world is still blissfully unaware. It’s beautiful to see. You only have to know where to look.

The imagery used in memes and artworks in the Bitcoin space is no accident: unplugging from the matrix, taking the orange pill, falling down the rabbit hole. If you are reading this, you probably know what I’m talking about. Many of us have this splinter in their minds that Morpheus is describing. A feeling that things aren’t right in this world. However, without an exit, something that will unplug you from the system, there isn’t much you can do about it.

Just like Neo had to ingest a pill so he could be unplugged from the Matrix, individuals across the world will have to take the orange pill to find a way out. The ride is neither pleasant nor easy, but freedom awaits at the other side. And freedom is where the journey begins. You can take the pill, or you can stay in the fiat world. The choice is yours.

I realize that it is impossible to make a choice if your perception doesn’t allow for it. You can’t head to the door if you don’t realize that a door is there in the first place. Consequently, without seeing a way out, the usual response ranges from frustration to depression to nihilism. Without realizing what game is being played, it is impossible to play it to your advantage. And once you see that the game is rigged, it’s incredibly hard to play along. Even worse, if you are forced to play along anyway, it’s borderline impossible to stay optimistic.

That is the beauty of art and design and music and writing: it can change your perspective. And once your perspective changes – everything changes.

When you change the way you look at things, the things you look at change.

Wayne Dyer

If someone would have told me a couple of years ago that Magic Internet Money will be the reason why I’m getting up early every day filled with optimism and excitement and purpose – I would have looked at you as if you’d have taken crazy pills. Ironically, if that someone would have been an early bitcoin adopter, that wouldn’t have been far from the truth.

Things are changing. We are about to enter a new era. Like Neo, people are beginning to believe. Like Neo, people are fighting back. Like Neo, people are exiting a system of oppression and slavery.

Thanks to countless writers and artists and meme lords it is now easier than ever to understand the woes of the fiat system and the benefits that Bitcoin has to offer. The revelation will come gradually at first, and suddenly it will be obvious: Bitcoin is here to fix our money, and in turn, fix the world.

Do you know what I’m talking about?

Morpheus

Of course, Morpheus is talking about the simulation they are stuck in. But he might as well be talking about another, similar system. It too is a system that 99% of the people are stuck in, and they don’t even realize it. Not The Matrix, but fiat money. While the jury is still out whether we are living in a simulation or not, the case that our current monetary system is terribly broken is proven beyond a reasonable doubt.

Morpheus: Do you know what I'm talking about?

Neo: Fiat Money.

Morpheus: Do you want to know what it is?

Neo: Yes.

Morpheus: Fiat Money is everywhere. It is all around us. Even now, in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work... when you go to church... when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.

Neo: What truth?

Morpheus: That you are a slave, Neo. Like everyone else, you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind.

Once you realize this truth – that we are living in a system of broken money and broken incentives – there is no way of going back. Awoken from the dream state of the rat race, you have no way of falling back into slumber. Thanks to Bitcoin, you now know there is a way out. The exit sign is dimly lit at first but it gets brighter with every step towards it. Once you are in front of it, you wonder how you were ever able to not see it in the first place: a glowing orange door, with two large numerals engraved on it: twenty-one.

I believe that a bright orange future is upon us. We are at the dawn of the Bitcoin renaissance, and it will be reflected in the families we raise, the products we build, and the art we create. Sound money, sound families, sound culture.

Are we the crazy ones to believe that a piece of automated machinery revolving around the number 21 can fix so many of society’s problems?

Maybe.

However, it is probably less crazy than what the majority of people (and economists, for that matter) currently believe: that you can solve every crisis with endless fiscal stimuli, corporate bailouts, infinite quantitative easing, and other euphemisms for money printing. If you’re a hammer everything looks like a nail, and if you are the Fed or the ECB everything looks like a liquidity crisis. If you believe that money printing has no cost it is no wonder that you will try to solve every problem by printing more money at all costs. After all, as long as you are in charge of the printing press, you can easily afford it!

I truly believe that one of the most profound changes that bitcoinization is bringing with it is a change on an individual level. We see it over and over and over again. It might be because self-sovereignty comes with a lot of responsibility, and taking this responsibility begets a change of character. It might be the change in time preference that adopting Bitcoin as a savings technology seems to induce. The shift from a consumption-at-all-cost fiat culture to a stack-sats-for-salvation bitcoin culture is a profound one for sure. It might be that Bitcoin is something worth fighting for, a glimmer of hope for generations to come, a rallying cry for individuals all over the world.

Whatever it is, the side-effects of adopting Bitcoin seem to be consistent. You will start to plan for the future. You will start to take better care of your health. You will work towards making this bright orange future a reality, whether it is by producing content, educating others, starting a company, or simply stacking sats. You will do your best to strengthen your body and mind, so you will be prepared for what is to come: gradual bitcoinization and eventual hyperbitcoinization.

Don’t confuse my conviction with prophecy. Who knows what will happen. Bitcoin has the propensity to humble you in more ways than one. The world is a large and complex place, and Bitcoin is a large and complex system.

I believe that we are living through bitcoinization right now and I’m sure that it will be obvious in hindsight. Today, it is anything but. Most people are still stuck in The Matrix. For now, there are only a few of us who were crazy enough to unplug. Artists, writers, coders, designers, entrepreneurs, musicians. Builders and tinkerers from all walks of life. We are still at a stage in this unfolding process where you have to be a bit crazy to believe that this orange coin will change the world.

It won’t happen on its own, and it won’t happen directly. It will happen because of you and me and thousands of other people like us. Bitcoin has the power to change the individual, and the individual has the power to change the world.

Keep creating. Write songs. Create great art. There aren’t enough artists in the world, and there sure as fuck aren’t enough bitcoiner. What is 21ism? Taking the orange pill. Making your way towards the exit. Building towards a future that is better for all. Creativity. Optimism. That’s what it is, at least for me.

This article first appeared as an exclusive piece for 21ism, Block 01.

Crushing

Sun, 04 Oct 2020 00:00:00 +0000

Like crashing waves along the shore, life’s challenges - big and small - don’t come isolated, and once a big one hits, you can be sure that another one - equally big, or even bigger - will hit just moments later.

If you’re not careful, the waves will crush you underneath their might, swallowing you whole, leaving you no room to breathe. I am writing these lines as I’m gasping for air, struggling to stay afloat in the waters of an unfamiliar shore. It’s a good kind of struggle, the one that makes you a better swimmer - if you survive.

Man is but a reed, the most feeble thing in nature, but he is a thinking reed. The entire universe need not arm itself to crush him. A vapor, a drop of water suffices to kill him. But, if the universe were to crush him, man would still be more noble than that which killed him, because he knows that he dies and the advantage which the universe has over him; the universe knows nothing of this. All our dignity consists then in thought. By it we must elevate ourselves, and not by space and time which we cannot fill. Let us endeavor to think well; this is the principle of morality.

Blaise Pascal

To smash, shatter, break into fragments; force down, and bruise by heavy weight. To overpower and subdue, to gnash teeth, crash, smash, break. All of that and more is crushing, yet having a crush is usually the opposite. Or is it?

I often say to my students, when they first come and they begin to feel the infiniteness, the joy and the deep peace, and they feel very happy, I say to them, Don’t just joyride. Be quiet. Be one with this. Know that this is beyond belief. This is direct experience. But because this is taking place in you, a storm is coming. And this storm is the storm of ego! The storm of ego is going to come to crush what you have discovered, to bring fear in you, to make you feel that you are making a mistake, to bring in states of confusion. And some of you may give in to that and run away, and feel, ‘No, I must not do this anymore!’ But I want to encourage you. This exercise, this ‘meditation’, you may call it, comes from the very core of your Self. It comes from the God-place in you. And this tendency to run comes from the negativity, the toxicity that we have picked up in life. That is going to come up as though it wants to ruin your Garden of Eden inside your heart. I am telling you ahead of time that all beings who awakened to their true nature experienced these types of resistance, this type of aggression from the mind.

Mooji

Resistance. Ego. The opposite of joy and peace.

In the grand scheme of things, my sorrows are just a drop of water. And yet, in my weakest moments, this drop, this vapor of an intangible substance, feels crushing.

On Bitcoin's UX

Sun, 20 Sep 2020 00:00:00 +0000

There is an ongoing discussion in the Bitcoin space revolving around the topic of user experience, or UX for short. Bitcoin still feels weird, clunky, and complicated at times. The main reason for this is that Bitcoin and its parts (the network, the protocol, the cryptography, the scripting language) are indeed weird, clunky, and complicated. Just like the internet was, and, arguably, still is.

Before LNP/BP and TCP/IP there was IPX/SPX.

The reason why the internet doesn’t feel as clumsy anymore is twofold: (1) people got used to a lot of the novel concepts the internet brought with it, and (2) countless layers of abstraction make interacting with the base protocol easier. Related technologies such as plug-and-play helped to make the user experience even better. Gone are the days of manually setting the IRQ number of your network card!

What is an IRQ?

Just like the internet, Bitcoin is an evolving ecosystem. Keep in mind that a lot of things have already changed for the better. For example, the first wallet that supported QR codes was released in 2012. XPUBs (BIP32) were proposed in the same year. Seed phrases (BIP39) were proposed in 2013. BIP44 (HD Wallets, aka “accounts”) came in 2014. SegWit (BIP141) was proposed in 2015 and — after a prolonged civil war — activated in 2017. Today, most people take QR codes and seed phrases for granted, not realizing that these weren’t always part of Bitcoin. I’m sure that some take the Lightning Network (made possible thanks to SegWit) for granted as well.

My point is, all of these under-the-hood, technical improvements are insanely important for UX. Without them interacting with the Bitcoin network would still be hell. Seed phrases? Easy wallet recovery? Lightning Network? Forget it! Yet, all these improvements are insanely technical and require technical discussion. More improvements are coming down the pipeline (Schnorr, Taproot, and more), so expect discussions in the Bitcoin space to remain technical for quite some time to come. Think “Linux” — not “iPhone”.

git was different in 1998

Speaking of iPhones: The tension seems to be between tinkerers and users coddled by iPhones & Co., expecting everything to work perfectly and be super-duper easy to understand RIGHT NOW.

Well, it isn’t. Just like one had to know what an IP address is and how packet switching works in the early days of the internet, you kinda need to know what an XPUB is today. DHCP basically got rid of the IP addresses problem, just like Google did away with the “typing in exact URLs” problem. All of that will be true for Bitcoin as well. It just won’t happen overnight.

The base protocol will probably slowly ossify over time, just like the Windows TCP/IP setup dialog ossified over time. Once the base layer is sufficiently optimized most innovation will happen on higher layers.

Cool. Now that we've got the UI sorted let's upgrade to IPv6.

I believe some people closer to the engineering side are simply tired of the “it’s so complicated, it should be easier” line. Yes, we agree, all of it should be easier, and we are all doing our best trying to make it so.

Some are building products that are easy to use (Strike, Casa, Coinkite, Samourai, etc.), others are working on protocol improvements so that everything will be easier and better in the future (thank you core devs!), others are working on the wider ecosystem (Raspiblitz, BTCPay Server, Umbrel, etc.), and others on education and outreach so that more people can get on board and help to make Bitcoin better.

Over time, people will get used to the concepts that we can’t abstract away. I’m convinced that things will get easier, just like connecting to a network is easier than it was in 1995.

Make good things.

Bitcoin is a new paradigm, just like the internet was. Just like there was no way around email addresses (“What’s this strange @ sign?”) and URLs (“What’s http/https/ftp/ssh?”) there is currently no way around bitcoin addresses, private keys, and, you guessed it, XPUBs.

Some concepts are essential, removing them because you want a better UX might turn out to be fatal. Remove packet switching (net neutrality) from the internet, and you destroy what made the internet great in the first place. Remove self-custody (or account-creation via mathematics, or neutrality, or a multitude of other things) from Bitcoin, and you destroy what makes Bitcoin great in the first place. It goes without saying that self-custody will always be worse in UX terms when compared to letting someone else take care of things. Similarly, setting up your own domain and hosting your own website will always be more hassle than creating a Facebook page. It’s a matter of tradeoffs, always.

Focusing purely on maximizing UX might lead to suboptimal results in the long run. Just compare Facebook, TikTok, and the walled garden of iOS to permissionless open protocols and the FLOSS ecosystem. Personally, I will always choose freedom over convenience.

The future is bright. We just have a lot of building to do.

Gigi

Want to help? Get involved! Join the conversation on Twitter and Telegram. In love with design? Join the Bitcoin Design Slack workspace organized by our friends at Square. Good with languages? Help to translate bitcoin core and other open-source projects to your local language. If you’re especially ambitious you can try to create a BIP39 word list for your local language. Not afraid of code? Participate in the Bitcoin Core PR Review Club and review open pull requests. Onwards!

Why I Joined Swan Bitcoin

Tue, 18 Aug 2020 00:00:00 +0000

I have a picture on my wall that says the following: “You literally ought to be asking yourself all the time what is the most important thing in the world I could be working on right now, and if you are not working on that why aren’t you?”

It is a quote by Aaron Swartz and my daily reminder for two things: (1) life is short (2) important things exist, and working hard on them is worth the sacrifice so that the future might be brighter than the present.

To me, that important thing is Bitcoin.

A Flock of Swans

I believe that the people behind Swan — Cory, Yan, Brady, Brandon, Brekkie, Jörn, Reed, and many others — understand the importance of Bitcoin. They understand that making the transition to a sat-dominated world as painless as possible, for as many people as possible, is one of the most important things you could be working on. As more people opt into Bitcoin, having a way to seamlessly move from the fiat world into the Bitcoin world is essential. I know of no better way than auto-DCA: set it and forget it. Ignore the noise, focus on the big picture, and consistently stack sats on the way to hyperbitcoinization. Switching from manual buying to auto-DCA was one of the best decisions I ever made as a bitcoiner, and I am delighted to join a company that is focused on that. Less FOMO, less trading, less zero-sum games. More building, more outreach, more Bitcoin Zen.

Education Across the Pond

It seems that the amount of your exposure to fiat is inversely correlated with your understanding of money. Consequently, education around this and other topics related to Bitcoin are dear to my heart. Swan has a strong focus on education from the start, with Yan as the author of Inventing Bitcoin and Brady, Citizen Bitcoin himself, as the head of education. Most people still have no idea what Bitcoin is, how it is different from other forms of money, and why they might want to use it. I hope that this will change over the coming years, and I hope that I will be able to contribute to Swan’s effort of bringing Bitcoin education to the masses. There is only one way to build an intransigent minority: one bitcoiner at a time.

This Is Water

As David Foster Wallace famously said in his commencement speech: There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”

The metaphor might not be perfect, but I believe that in the world of Bitcoin, code is the water that David Foster Wallace is speaking of. I feel that I’ve been so immersed in Bitcoin that I forgot what makes it all work: code. I’m excited to return to my roots as a computer scientist and programmer to work on what makes Bitcoin and the ecosystem around it work. I will continue to write words as well, but damn does it feel good to write code again.

Taking Flight

I feel blessed to be part of something so monumental, so profound, so optimistic as Bitcoin. An orange beacon of hope, in a world that seems to be splitting apart at the seams. I feel blessed that I can work alongside so many amazing bitcoiners — inside and outside of Swan — people that tirelessly work towards a bright orange future.

I have the feeling that we are on the verge of something great. This giant bird is about to take flight, and I hope the world is ready. We will do our best to get as many people on board as possible, as safely as possible. It won’t always be easy, but I know in my heart that it is the most important thing in the world I could be working on right now.

Onward!

True Names Not Required

Tue, 21 Jul 2020 00:00:00 +0000

In 1981, at a time where the internet was in its infancy (and I was just a gleam in my father’s eye), the legendary mathematician, computer scientist, and science-fiction author Vernor Vinge published his prophetic novella True Names. The story unfolds in two realms: the real world (meat space) and the Other Plane (cyberspace). Reading it today, many concepts dreamed up in the book seem neither strange nor far-fetched. For example, spending the better part of your waking hours in cyberspace, a place where most people know you by your pseudonym (and not your True Name), might have been science-fiction in the 80ies. Today, thanks to the internet and the abundance of virtual worlds it spawned, it is a regular part of life.

It is no accident that Bitcoin was created by a pseudonymous entity. The legend of Satoshi Nakamoto will always be a part of Bitcoin’s story, which in turn means that the concepts explored in True Names — identity, privacy, anonymity, pseudonymity — will be part of it as well.

Discovering Bitcoin and plugging yourself into #BitcoinTwitter (original illustrations by Bob Walters)

I was born in a small town in Austria, a town that shall remain nameless for the time being. We were living in a quiet and family-friendly neighborhood, in a quiet and family-friendly house, with a garden, two cats, and beautiful plum-, pear-, and cherry-trees. The cats were named “Mimmi” and “Morli,” keeping with the family tradition of grouping things by the first letter. Being cats, they didn’t really care if you called them by their name. The only thing they would listen to was the sweet sound of Whiskas cans being opened. Way before I learned that cats are somewhat agnostic to identity, I had to learn to make sense of this world. I had to get familiar with the very pegs we hang our ideas on; I had to learn how to speak. I don’t know when I started babbling, but when I did, I repeatedly said one syllable, over and over again: dʒɪ.

My sister, both jokingly and lovingly, repeated that all the time and so it came to be that she gave me a nickname that stuck ever since: Gigi.

Turning away from a sea of shitcoins.

It’s funny how some things turn out. I’m pretty sure she didn’t think much of it at the time. After all, she was only five years older than me. (She still is; I never managed to catch up!) After a while, all the kids in the neighborhood started to refer to me as Gigi. Since this was at a time before I had a chance to think about identity in any way, it came to be that I never truly identified with my real name. In essence, Gigi became my real name. If you didn’t call me that, I wouldn’t react. Over the years this became so engrained that pretty much everyone who got to know me didn’t use my legal name: teachers, professors, my employers, co-workers, friends — even today it isn’t uncommon that people who know me quite well don’t know my legal name at all.

On the internet, this is normal. You get to know people, their handles, their personalities, what they post, how they react, in short: what they are like — to some extent at least. This is even more pronounced in the gaming world, where intense interaction, voice communication, and a shared reality come into play. I’ve had quite a few friends over the years that I would consider real, true friends. Friends I’ve met online, thanks to the lovely world of online gaming. People I’ve talked to every day for several years. People whose life stories I know intimately, and they know mine. We’ve been through hardships and heartbreaks, talked until the sun rose again, got drunk, shared secrets. Most of these people I’ve met in meat space at a later point in time. Some, however, I haven’t met to this day. I will probably never meet them, now that my gaming days are mostly behind me. And that’s fine. I grew up in a world where nicknames, handles, pseudonyms, and anonymity are the norm, and I wouldn’t have it any other way. That’s one of the reasons why I love the internet, and it’s one of the reasons why I love Bitcoin: you don’t need a fixed identity to use it. That’s the beauty of it: True Names not required.

Early training for the great meme wars of the future.

Unsurprisingly, the whole idea of anonymity and pseudonymity is under attack. People conspire in digital witch hunts to find out the True Names of pseudonymous personalities, trolls threaten to doxx people to mess with their lives, and, sadly, even journalists threaten to reveal the real identities of their subjects these days. To make matters worse, Google, Facebook, and Amazon want to make you believe that you have one true identity. That you can be measured, parametrized, surveilled, and predicted. They promise benevolent assistance thanks to algorithms that understand you better than you understand yourself while cutting your identity into neatly packaged pieces and selling them to the highest bidder. Banks and governments do the same thing, by the way — but without the reassuring promises.

What these companies don’t realize is that identity is prismatic. Your persona depends on circumstances and context, both in meat space and online. You will present yourself differently in a night club as opposed to a funeral, just like you will present yourself differently on Tinder as opposed to LinkedIn — at least I hope you do. Whom you talk to is important as well: you will say different things — and in a different tone — to your child, your lover, your pastor, your boss, the cute barista at your favorite coffee shop, or the co-worker you can’t stand to see. You are also not the same person you were ten years ago. Your interests and political views have probably changed, as has the way you see the world and yourself. Thus, your identity is both fluid and prismatic. In the words of Walt Whitman: you contain multitudes.

The cypherpunks recognized that a free society can not function if identity is rigid and known to all. A free society requires the option to selectively reveal yourself to the world, or not reveal yourself at all.

Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.

Eric Hughes

The distinction between complete anonymity and pseudonymity is an important one: anonymity does away with identity completely. Pseudonymity allows for temporary identities. You might be a space cat, a wizard, a Japanese programmer, a Shaolin, a Samourai, a dragon lord, or a nocturnal Octopus who does magic at midnight. Pseudonyms allow you to build up a character, a reputation, a self-image of your choosing. Complete anonymity is crucial as well. It allows you to speak freely, unencumbered from reputational loss, disconnected from your identity — constructed or not.

Man is least himself when he talks in his own person. Give him a mask, and he will tell you the truth.

Oscar Wilde

History has shown that in society in general, and in Bitcoin in particular, you don’t necessarily need to use your legal name to be recognized or taken seriously. There is a reason why Eric Arthur Blair didn’t choose to publish his books under his True Name, but use a pseudonym: George Orwell. Alisa Zinov’yevna Rosenbaum probably had her reasons too — she published her novels as Ayn Rand. Similarly, Satoshi Nakamoto had good reasons to stay pseudonymous and not use his True Name. He chose to protect his identity so he could eventually remove himself from the picture, leaving Bitcoin without a leader and a creator. A gift from the gods, if you will.

Paradoxically, pseudonyms can be more powerful than True Names. The best example of this is probably Siddhārtha Gautama — the Buddha. He transformed himself into an idea. The Buddha can’t be killed, even if you kill the person currently known as the Buddha. The pseudonym transcends the individual. We are all Buddha, at least potentially, at least in part.

Original artwork by Lucho Poletti

Similarly, we are all Satoshi. Every single one of us who cares about Bitcoin, driving it forward, educating others, starting and running companies, pushing adoption, writing code, documentation, books, and essays, making music, creating art. Everyone who uses Bitcoin how he or she sees fit. Everyone who runs a node. Everyone who chooses to exit the fiat system and hold some (or all) of their value in bitcoin. We are all Satoshi because nobody is Satoshi. We are all doing our part to fix the money, and in turn, fix the world. There used to be a Satoshi, but now there is no Satoshi. He chose to keep his identity secret, and I hope we will never find out what his True Name was. Not that it would matter — his gift to us is all that matters. Bitcoin was given to us, and now it simply is. It doesn’t require an identifiable creator because True Names are not required.

Just like names can transcend the individual and become something more powerful, a mask can become a symbol in itself. In such cases the utility of the mask becomes secondary — the primary use is to show support for a cause, to rally behind an idea or an ideal.

One of the most powerful scenes in the movie V for Vendetta is the march of the masks in which thousands of citizens march toward the Houses of Parliament, hiding their faces behind Guy Fawkes masks to support the idea put forward by the masked protagonist.

#WeAreAllHodlonaut

Not too long ago, analogous to the scene depicted in the movie, an army of bitcoiners decided to (temporarily) change their online identities in support of an individual (and the idea the individual embodies). I am talking, of course, about our beloved and pseudonymous space cat. For a couple of weeks, we all wore a mask. For a couple of weeks, we were all hodlonaut. We were all hodlonaut because the thought that a pseudonymous pleb can be doxxed, attacked, snuffed out, and silenced by rich and lying assholes was so outrageous, so preposterous, so disturbingly wrong that it was worth to stand up and put on a mask. We need to be able to disassociate from our identities to protect ourselves. We need the freedom to selectively reveal ourselves. We need the possibility to rally behind names, symbols, masks, and the ideas they represent — using transient identities and wearing masks ourselves if we have to. If identities are permanent and transparent, rebellion and revolution are impossible.

The history of names and identities is a fascinating one. Before I fell down the Bitcoin rabbit hole I’ve been working on passport and identity software, effectively writing software for the surveillance state. There are many things in my life that I’m not exactly proud of. Writing software to automatically process, identify, and classify people is one of them. Yes, the technology that powers facial recognition, fingerprint scanners, and pattern matching is fascinating. Yes, the fact that you can extract information from passports by simply tapping your phone on them is cool technology (the little chip symbol on your passport means that it has an NFC chip in it). But is it necessary? Is it even a good idea?

As you can probably guess, I don’t believe it is. Normalizing the idea of permanent identities will hasten the transformation of our surveillance states into full-blown dystopian panopticons. Normalizing the use of biometrics will make it even worse. While inconvenient, it is possible to change your name. Need to change your face or your fingerprints? Good luck with that. Remember: biometrics are usernames, not passwords.

Back to identity. Keep in mind that passports were supposed to be a temporary measure. Of course, as is custom for all temporary fixes, passports are now a permanent part of our lives. How we use and see names has changed quite drastically over time as well. We now imagine that every person on the planet has a first name and a last name and that these names will nicely fit the [a-Z] pattern of the systems that process them. However, some people don’t have last names. Others have names that include (or consist solely of) numbers, and billions of people have names that don’t fit into the anglocentric alphanumeric system at all. There are roughly a hundred million people named 王, for example.

Historically, names and identities have always been intertwined. Many of the common surnames are derived from occupations: Carter, Cooper, Thatcher, Smith, Tailor, Fisher, Glover, Slater, Shoemaker, Weaver, Ward, Webster — all these and more are occupations turned family names. Your name was a description of what you do, not defining who you are in totality.

Legal names, by the way, aren’t necessarily less weird than nicknames can be. Grimes and Elon Musk decided to name their son “X Æ A-12”, to pick a recent example. The AI researcher and mathematician Ben Goertzel named his kid “Qorxi” which is short for “quantum organized rational expanding intelligence.” There is also this one dude who decided to change his legal name to “Captain Fantastic Faster Than Superman Spiderman Batman Wolverine The Hulk And The Flash Combined,” Frank Zappa’s daughters “Moon Unit” and “Diva Muffin” — and many more, I’m sure.

My point is this: Tying everything you do and every transaction you make to one singular identity is not only unnecessary, it is a recipe for disaster. It is a road that leads to the dystopian hellscape of social credit scores — the orgasmic dream of every dictator and totalitarian ruler that ever lived.

Remember that it never was necessary in the first place. You go to the baker, say hi, hand him some money, he hands you a loaf of bread, and that’s it. The money doesn’t know who you are. Neither does the bread. The baker doesn’t have to know or care who you are. No names or identities are necessary. Contrast that to any online payment you made in the last decade. You go to the online shop — which probably already knows everything about you, and if it doesn’t, forces you to register — every click and every keystroke is monitored and analyzed. Once you find what you’re looking for you pay with PayPal, a credit card, or similar payment processors that also know way too much about you. The transaction has to be approved by this third party, and will only be approved if your identity is known and you aren’t offending the moralities of the companies and jurisdictions involved.

Bitcoin does away with all that nonsense. It is a return to a saner world. It doesn’t require an identity. It doesn’t require approval. It doesn’t care who you are. It doesn’t force you to show your ID card, or your passport, or your face, or any other biometric identification. It doesn’t even care if you are human or not. Want more fairness in this world? How about opting into a financial system that can not discriminate. “Don’t be evil” doesn’t work. Can’t be evil does.

Bitcoin allows us to build towards a better future. A future where True Names are not required. The current system is broken in many ways. We can do better. We must do better. One by one, people will discover the beauty of Bitcoin and join this peaceful revolution. They will be free to use their real names if they want to, but they don’t need to do so. This is Bitcoin. You can stay anonymous. You can be pseudonymous. That is the beauty of it. True Names not required.

Gigi

This article first appeared in Citadel 21, Volume 4.

Dare

Tue, 23 Jun 2020 00:00:00 +0000

Dare to be different. Dare to try something new. Dare to struggle, dare to fail, dare to start anew. Dare to go out into this world, dare to dream, dare to give it your all. Dare to go out on a limb, even if you might fall.

There are seasons, in human affairs, of inward and outward revolution, when new depths seem to be broken up in the soul, when new wants are unfolded in multitudes, and a new and undefined good is thirsted for. There are periods when…to dare, is the highest wisdom.

William Ellery Channing, The Union (1829)

The Bitcoin Journey

Mon, 15 Jun 2020 00:00:00 +0000

A couple of weeks ago I had the immense pleasure of giving the opening talk at the Value of Bitcoin conference. I would like to revisit some ideas of this talk and maybe dig deeper into some parts. After all, my keynote The Bitcoin Journey was restrained by time: 21 minutes.

Again, I will look at the Bitcoin journey in two parts:

The journey of a bitcoiner
The journey of Bitcoin

Part 1: The Journey of a Bitcoiner

The natural reaction upon encountering Bitcoin for the first time is to dismiss it. Most people reject the idea that Magic Internet Money could work, or could be interesting, or could fix any woes that society might have. Outright dismissal was my first reaction as well: “Oh, this will never really work. It will get hacked one day and all your funny internet money will be gone.” Alas, at least I can find comfort in the fact that I’m not alone with my initial reaction. While some bitcoiners understood the gravity of the situation immediately, most of us mere mortals had to be confronted with Bitcoin multiple times before we took a closer look.

In short, the journey of a bitcoiner usually goes like this:

This will never work.
Why isn’t it dead yet?
Oh, this is interesting …
🕳️ 🐇
⬇️
🤯

Falling down the Bitcoin rabbit hole can feel a little bit like being stuck in an M.C. Escher painting. Up is down, down is up, a lot of things don’t make sense at first, and the longer you look at it the more confusing it gets. However, there is some order to this chaos. It’s just not apparent at first.

The reason for this initial confusion is, I believe, twofold. First, Bitcoin is extremely interdisciplinary. It spans a lot of topics, even if you just want to get a rudimentary understanding of it. You will probably have to learn some cryptography (at least what the difference between a public key and a private key is), some computer science (how does a decentralized network differ from other computer systems), some trading (where can I buy bitcoin and why does it have the price it currently has), and some game theory (who controls Bitcoin and why is it so hard to change or shut down) just to get started. Curiously, the deeper you dig, the more disciplines will pop up: macroeconomics, scalability, elliptic curve cryptography, monetary policy, the history of money, the measure and study of scarcity, smart contracts, programming and scripting languages, incentive structures, laws, regulations, privacy, security, psychology, even biology. The list of topics is practically endless.

This idea is quite beautifully illustrated by what I would call The Bitcoin Flower (Unchained Capital, 2017) and The Bitcoin Learning Spiral (Block Tower, Ari Paul, 2018).

The downside of this multidisciplinary nature is that understanding Bitcoin doesn’t come easy. The upside is that many roads might lead you to take a closer look at Bitcoin. In other words: many entries lead down this particular rabbit hole. Whether you have a background in computer science, finance, trading, cryptography, physics, economics, are a gold bug, a classical liberal, or have flirted with the idea of cryptoanarchy. All these backgrounds can give you a head-start.

What is interesting, though, is that so many people from so many different backgrounds arrive at the same conclusion: bitcoin is the money of the future. While the rabbit hole has many entries, in the end, all roads lead to Bitcoin.

Part 2: The Journey of Bitcoin

Bitcoin is a zero-to-one invention. Before Satoshi invented Bitcoin, real digital scarcity did not exist; the double-spending problem was unsolved. Today, we live in a world where Bitcoin exists. More importantly, we live in a world where bitcoin has value.

Thus, we can identify three stages:

Stage 0: Bitcoin does not exist.
Stage n: Bitcoin exists.
Stage N: bitcoin has value.

Stage N is important because Bitcoin’s underlying NgU technology requires that bitcoin has some value. Once it acquires value — any value — Bitcoin’s eternal feedback loop kicks in.

Satoshi alluded to this feedback loop in his writings.

It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy.” — Satoshi Nakamoto

Over the last couple of years all kinds of people — artists, researchers, quants, traders, commentators, in short: bitcoiners from all walks of life — noticed that Bitcoin seems to come in waves. In 2018, Hasu and Nic Carter published Visions of Bitcoin, describing the various competing narratives that were used to describe Bitcoin up to this point: e-cash proof of concept, censorship-resistant e-gold, cheap payments network, programmable shared database, anonymous darknet currency, reserve currency for crypto, and finally: an uncorrelated financial asset.

More recently, Plan B published his Stock-to-Flow Cross Asset Model (S2FX) which identifies distinct clusters by looking at the stock-to-flow and market value of bitcoin. He identified four distinct clusters:

Proof of Concept
Payments
E-Gold
Financial Asset

If the model holds, we are about to enter Phase 5. How Bitcoin will manifest in this phase will be known only in hindsight.

Another analysis regarding the wavy nature of Bitcoin was done by Unchained Capital, first published in 2018. Their HODL Waves beautifully show the age distribution of the Bitcoin UTXO set. In essence, we can see that a certain percentage of people choose to hold bitcoin for the long term, i.e. for several years. They identified various HODL waves just by looking at the UTXO age: the Genesis HODL, the HODL of 2011, and the HODL of 2014. By looking at the most recent data we can also identify a HODL of 2018.

The most entertaining analysis is this video by Alex Millar, published in 2015. He is looking purely on price, showing how bitcoin tends to accrue value in a massive run-up, only to crash down hard a short time later. However, the price floor after the crash is usually way higher than the previous low, resulting in an upwards trend in the long run.

These various phases and waves show that Bitcoin has a cyclical nature. We already saw how demand, price, and security form an eternal feedback loop. However, many different aspects of Bitcoin are cyclical. Adoption, development, mining, difficulty adjustments, reward eras — all of them are cyclical. Granted, the halvings will stop in about 120 years, but the other cycles will most likely continue.

Part 3: Coming Full Circle

The essence of Bitcoin, the one thing that is truly unchanging, is the output of the system: the UTXO set. Nodes work together to constantly append it, verifying blocks and transactions, adding what is valid and discarding what is invalid. The chain tip is the shared understanding of all nodes: the version of the ledger which is most accurate and up-to-date.

Similarly, people are building a shared corpus of knowledge and mental models trying to figure out what Bitcoin is. Bitcoiners work together to constantly add to the knowledge, incorporating what is valid and meaningful, discarding what is invalid or doesn’t make sense. Our shared understanding of Bitcoin can be seen as a Schelling Point: the conclusion that most people arrived at after intense study, often without indoctrination or communication with others.

A Bitcoin node doesn’t trust what others are saying: it verifies all data as best as it can. Similarly, most bitcoiners don’t trust what others are saying: they verify narratives and mental models as best as they can.

Just like Bitcoin is a game without an end, falling down the Bitcoin rabbit hole is a journey without an end. Bitcoin is an ever-changing, organic system. It will evolve, as will our individual and collective understanding of it. In other words: I believe that the reason why no-one has found the bottom of the rabbit hole yet is that there is no bottom. The rabbit hole is circular. In the coming years and decades, many people will try to fully understand what Bitcoin is and what it might become. But try as we might, I’m afraid a complete understanding will never be gained. We will all have to find our peace with this alien technology, or we are bound to walk in paradoxical circles around it in our quest to full comprehension.

In the end, if Bitcoin continues to be successful, it is bound to disappear. Just like the internet and electricity before it, it will move to the background, like running water in your home or the air you breathe. Everyone will take Bitcoin for granted. Consequently, bitcoiners will disappear. Just like today, you don’t have to identify as an “internet person” anymore, in the future, you won’t have to identify as a bitcoiner anymore. When this day comes, we will have entered the final stage.

Stage O: Bitcoin is Omnipresent.

Further Resources

Recording of the talk on YouTube
Slides on SpeakerDeck
21 Lessons aka my journey down the rabbit hole

Habits

Sun, 31 May 2020 00:00:00 +0000

We are creatures of habit. Our bodies are shaped by what we do routinely, over and over again. Many of the things we do daily are in the realm of the unconscious: we don’t think about them, we just do them. Getting up in the morning, brushing our teeth, taking a shower, the way we prepare our breakfast, tie our shoes, and a million other things.

While the world is changing constantly, change today is happening faster than ever. We seem to be at an inflection point. History is unfolding in front of our eyes: a global pandemic, a near-global economic shutdown, global protests, endless money printing by central banks, censorship by central platforms - the list goes on.

We will have to let go of old habits, of old patterns, of old ways of doing things. Both individually, and as a society as a whole. Transformation is always painful, especially if parts of you that aren’t working correctly anymore have to die off.

To uproot an old habit is sometimes a more painful thing, and vastly more difficult, than to wrench out a tooth.

Samuel Smiles

While changing habits is indeed difficult, remind yourself that it is possible. In the words of Benjamin Franklin: “Each year one vicious habit rooted out, In time might make the worst Man good throughout.”

We can do better. We have to do better. I will do my best to do my part. That’s all that anyone of us can do, really. The question is: will it be enough?

Dear Family, Dear Friends

Mon, 27 Apr 2020 00:00:00 +0000

I am writing this letter because I am convinced of two things: (1) our current money is fundamentally broken (2) using superior money will benefit you in particular — and society in general — in the long run.

Money is a touchy subject — most people don’t like to talk about it, either because they have little and are ashamed, or because they have lots and are afraid. Even fewer people know anything about the nature of our money, which is quite shocking — after all, money is an essential tool of our civilization.

The world has changed drastically in the last couple of decades, as has the world of money. I’m afraid, however, that the underlying nature of our monetary system has not changed for the better. The simple fact that governments around the world are conjuring up trillions (with a T) of dollars out of thin air is a testament to how disconnected our monetary system is from reality.

I hope that this letter will plant the seeds for a better future. A better future for you, personally — and a better future for us all. In part, I am writing to you because I’m worried about what is yet to come. And yet I am hopeful, because this time, we have a way out — we have a Plan B.

Plan B

By now, you have probably heard about Bitcoin. It is a household name, frequently featured in major news outlets, on TV (I’m looking at you, CNBC), and referenced in pop-culture (The Simpsons, Mr. Robot, Silicon Valley, The Big Bang Theory, Grey’s Anatomy, Family Guy, and The Simpsons again). Whatever you might know or think you know about Bitcoin — there is more to it than meets the eye.

Bitcoin: it is the future of money.

While Bitcoin has been covered in the mainstream media quite a bit, what Bitcoin is and what its role in the world will be is still widely misunderstood. However, in part thanks to more and more reckless monetary interventions by the Fed and similar institutions, even the mainstream narrative is beginning to shift. Bitcoin is not a synonym for criminality and darknet money anymore. Today, it is more and more becoming a synonym for sound money, a hedge against the current system, a vote for freedom, a different paradigm.

If you are reading this and still have no bitcoin you might want to think about starting to get some. It was never as easy as it is today to get your hands on some sats (tiny fractions of a bitcoin) and become an early adopter of the global money of the future.

Be warned: I will not tell you how Bitcoin works. I will not tell you about its captivating history, or its mysterious inventor, or about the marvelous design, cryptography, and game theory behind it. I will not talk about economic theories, or monetary properties, or the history of money. There are plenty of resources that go into that. After all, this is supposed to be a letter, not a book.

However, since I care about you, I will tell you one thing, over and over again: start stacking sats, as soon as you can.

Start Stacking Sats, Today

You might think that you’re late to the party, that the ship has sailed. Wrong. You’re still early. Bitcoin will continue to march on, growing in size and value, eating up the government-controlled fiat currencies that rule the world today. How do I know that these are still early days? Well, while most people have heard about Bitcoin by now, very few people own or use it. Further, if we compare the market capitalization of Bitcoin to other assets and/or monies, Bitcoin still has tremendous room for growth.

As of this writing, Bitcoin’s market cap is around $137 billion. The total market cap of gold is around $9 trillion (~65 times larger than Bitcoin). That of real estate, globally, is $228 trillion (~1664 times larger). Bitcoin may capture some (in the case of real estate) or all (in the case of gold) of this value, demonetizing these and other assets in the process. Again: these are still early days.

We are in the process of repricing the world in sats.

Bitcoin Tina

Granted, buying and holding bitcoin is nuanced. It is easy to shoot yourself in the foot. It is easy to get scammed. It is possible to lose access to your bitcoin for good. Thus, a word of warning: educate yourself, and err on the side of caution.

Unfortunately, I didn’t have a “Bitcoin Guy” who understood what was going on. I didn’t have this one friend who told me “trust me, just buy some bitcoin” — or, even better: “trust me, just buy a little regularly.”

So I would like to be this Bitcoin Guy now, for you. Here is what I would say to you, as a friend: “start stacking sats, today.” If you already do, good. If you don’t, start stacking. It’s not that difficult!

Why Bitcoin is Necessary

We, as a society, need Bitcoin more than it needs us. Money is an essential tool for any large-scale cooperation. It is a measuring device, a solution to the problem of barter, a vehicle to store your wealth over space and time, and many other things. In short: money is essential for a complex society to function. However, a series of financial crises and recent events around a certain virus outbreak have clearly shown that our money is fundamentally broken.

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.

Satoshi Nakamoto

The virus not only reminded us of the fragility of human life, but it also revealed the fragility of our supply chains and other global systems. In particular, it highlighted the ridiculousness of our financial and monetary system. In a matter of days, we went from printing billions to trillions, to proposals of minting trillion-dollar-denominated platinum coins, to unlimited QE and infinite cash. Economists and politicians speak of saving the economy, of injecting liquidity, of quantitative easing, of reverse repurchase agreements, of bailing out those who are too big to fail (again) — of doing everything in their power to prolong the inevitable collapse, to kick the proverbial can even further down the road.

While the lingo is fancy, the repercussions are simple: an essential tool of our civilization is bent and distorted. Hyperinflation is what happens when this tool finally breaks under constant pressure. Hyperinflation or not, the repercussions for the individual are always the same: the money you save gets devalued, its purchasing power diminished. Whether your money is sitting under your mattress or in your bank account doesn’t even matter.

The world has gone mad and the system is broken.

Ray Dalio

As Ray Dalio explains so eloquently: our debt-based system of money is inherently broken. Bitcoin fixes this. It fixes this because it is not based on debt. It fixes this because it has a strictly limited supply. It fixes this because it can’t be created arbitrarily; because there are no gatekeepers, no central powers that might corrupt it.

Bitcoin is the antidote to modern monetary theory. It is necessary to straighten out the crooked world of fiat money.

The Best Money We Ever Had

Bitcoin’s monetary properties are designed from the ground up to be superior to all other forms of money. It is extremely portable, perfectly scarce, highly divisible, easily verifiable, durable, fungible, and extraordinarily resistant to censorship. As a friend of mine likes to say: Bitcoin is pieces of super-gold flying inside an unstoppable PayPal. It is the best money we ever had.

No central authority bestows these properties upon bitcoin. They emerge naturally from within the system, a fact that is as beautiful as it is important. Thus, Bitcoin is the people’s money: for the people, by the people. Not controlled by anyone; auditable and useable by everyone.

Buy land. They ain’t making any more of the stuff.

Will Rogers

Will Rogers had the right idea: scarcity has value. However, as a store of value, Bitcoin is superior to land (and gold, for that matter) in many ways. No other asset can be magically beamed across the internet or other communication channels. Bitcoin has the highest value density of all assets since it is pure information. You could have a billion dollars worth of bitcoin in your head, retaining your wealth even if stripped naked.

While there are many misconceptions about Bitcoin, the following are probably the most prominent:

Bitcoin is too expensive
Bitcoin is old technology
Bitcoin is too complicated
Bitcoin is risky and speculative
Bitcoin will be replaced by another coin

Let’s briefly go through these one-by-one.

Bitcoin is too expensive: To the contrary! Don’t let the “I need a whole coin” unit bias fool you. Bitcoin is still very cheap. However, if you think that way, you’re in good company. People have been thinking that bitcoin is too expensive since its inception. It will always be too expensive if your perspective is still rooted in fiat money.

Bitcoin is old technology: First of all, Bitcoin is a monetary invention rather than a technological one. It aims to replace the monetary base layer of our society — it isn’t the next viral app for your smartphone. Second of all, Bitcoin is improving and evolving at a rapid pace. It’s virtually impossible to keep up with all developments across the board.

Bitcoin is too complicated: Granted, Bitcoin isn’t exactly easy to understand. (But neither is the traditional financial system.) Luckily, as with all other complex technologies, usage doesn’t require complete understanding. If it would, you probably couldn’t use your smartphone, use the internet, or drive your car. And in terms of usage, Bitcoin becomes easier every day. Just like using the internet a couple of decades ago wasn’t exactly easy, using Bitcoin today can be challenging at times.

Bitcoin is risky and speculative: Don’t speculate. Stay humble and start stacking sats. If that’s not good enough for you, how about the fact that a portfolio of 5% bitcoin and 95% cash outperformed stocks on risk and returns every year for the past 6 years? Still too risky?

Bitcoin will be replaced by another coin: Bitcoin is the undisputed king and the only serious contender for digital scarcity. It has the best network effects, the highest liquidity, and the highest security by many orders of magnitude. Nothing else comes close, and I don’t want to waste any digital ink naming any other coin. All I will say about Bitcoin’s copy-cats is this: do not touch them. While the Siren’s song of shitcoins is hard to resist, they are called shitcoins for a reason. Bitcoin can’t be copied. It is a path-dependent-invention in a winner-takes-all environment.

There is bitcoin, and then there is shitcoin.

Warren Davidson

Shitcoins are a dead end. Don’t go down this path. Nothing but pain and sorrow will await you there.

Why Stacking Sats Is Superior

As of this writing, $1 will buy you 14,488 sats. Spend $70, and you are a satoshi millionaire. Bitcoin is expensive. Sats are cheap.

"I'm stacking sats every day thanks to auto-DCA"

As mentioned above, bitcoin is highly divisible. Again, don’t let any unit bias fool you: there is enough bitcoin to go around for everyone. Trying to buy large sums of bitcoin usually leads to trying to time the market. Stacking sats removes this psychological pressure. Even better: plenty of services exist which let you automate the process of stacking sats. Set it and forget it, and your stack will grow automatically. No need to worry about the perfect timing, no frantic checking of price, no exposure to custodians.

We all know the old proverb: “The best time to plant a tree was 20 years ago. The second best time is now.” The same is true for stacking sats — only Bitcoin didn’t exist 20 years ago. It is now a bit over 11 years old, bursting into global consciousness just a couple of years ago.

The best time to buy bitcoin was 10 years ago. The second best time is now.

The point is this: don’t beat yourself up having a 0% allocation to bitcoin. It’s not too late to get off zero. Again: it’s not too late. You are still early. Currently, you are still able to exchange other money for bitcoin. In the future, you will probably have to earn it. Think of it this way: if the trajectory that Bitcoin is on continues, there will never be a bad time to exchange your fiat currency for bitcoin.

Bitcoin is a game of accumulation. Once you realize that, stacking sats becomes the obvious strategy. Inelastic supply and the relatively small market capitalization make bitcoin more volatile than other assets. (Although, compared to recent movements in the traditional markets, bitcoin is relatively stable.) Stacking sats enables you to ignore the volatility of the market. The focus is on passive accumulation, not trading.

Bitcoin is a new type of money that is digital and independent of world governments or corporations. It is hard to seize, block, or inflate and easy to send around the world. It is the best money we have ever had. As more people realize this, the price should rise.

Matt Odell

Zoom out far enough and it becomes obvious that the price movement of Bitcoin is up and to the right. There are reasons to believe that this trend will continue. Even with this upward trend intact, the price of bitcoin will probably remain volatile for quite a while. My advice: ignore the price. Get off zero. Do you still have zero sats to your name? Stop slacking — start stacking!

Some things to remember:

You might think that you don’t have enough money to start stacking sats. I doubt it. If you are reading this, you are probably on level 4 and able to spare a dollar or two per day. Remember: a couple of dollars will buy you tens of thousands of sats. There are also indirect ways to stack sats, such as cashback services that pay you back in sats. You can also kick a bad habit and start stacking sats with the money you save. Two birds with one stone, and all that.

Sats are still stupidly cheap. I’d bet that there will soon come a time where it won’t be possible to acquire tens of thousands of sats for $1. The purchasing power of the dollar is going down continually; the purchasing power of bitcoin has been going up, historically. However, even if the price of bitcoin keeps rising drastically, you will probably still be able to get your hands on a couple of sats for $1 or less for the foreseeable future.

Believe it or not, it can go lower still.

You’re skeptical, I get it. I was skeptical too. It took me a very long time to understand what Bitcoin is about. It took me even longer to trust this magic internet money enough to buy some. And after that, it took me a while to stop trading and start accumulating. I hope to save you some time and a lot of heartaches by passing on the following: start stacking sats. The earlier you start, and the more automated the process, the better.

All that being said, a word of caution:

Start small. Don’t put in more money than you are willing to lose.
Stay humble. Don’t get greedy. Don’t over-extend yourself.
Not your keys, not your bitcoin. Do not trust custodians. Always remember that trusted third parties are security holes.
Don’t trust, verify. Assume that everyone is a scammer.
Do your own research. Bitcoin is open by nature, so you are free to study what it is and how it works. I curate a comprehensive list of resources if you need a starting point.

There was never a better time to start saving in bitcoin. Many services exist which let you automatically convert a certain amount of your local currency into bitcoin every week, month, or day. I will refrain from any recommendations here since they might be outdated soon. What the best service is for you is yours to find out. Contact your local friar or the bitcoin guy closest to you. If he doesn’t know what stacking sats means, find a better bitcoin guy. (And if I happen to be that guy, please reach out to me.)

Owning bitcoins is one of the few asymmetric bets that people across the entire world can participate in.

Vijay Boyapati

While Bitcoin is an investment in the future, I don’t necessarily view it as a speculative investment. I also do not view it as an asset that is to be sold again for dollars, euro, or yen. As the meme goes: When you’re ready, you won’t have to sell your bitcoin.

Neo has taken the orange pill and is tumbling down the rabbit hole.

Ready When You Are

Exchanging your fiat money for bitcoin is a move from an inherently unstable system to an anti-fragile one. It is wealth insurance and a vote for a better, more honest base layer of society. I believe that bitcoin still has a very high potential upside. Thus, the sooner you start to get exposure to this emerging money the better equipped you might be to benefit from its rising purchasing power. In other words: you want to start stacking sats as soon as you can. However, I also believe that Bitcoin will be understood by you as soon as you are ready. Consequently, I believe that the first fractions of a bitcoin will find you as soon as you are ready to receive them. “You can lead a horse to water, but you can’t make it drink,” as the saying goes.

You will find that owning bitcoin requires personal responsibility: you will have to do your own research, learn how to use and store it securely, and do many things yourself that are usually done for you by a third party. Nothing in life is free, and the freedoms granted by Bitcoin come at the price of personal responsibility.

In any case, Bitcoin is ready when you are. It won’t go away, and nobody will be able to stop you from acquiring some if you are ready to do so. That’s the beauty of Bitcoin: it will always be there for you, whether you make use of it or not.

Granted, Bitcoin is a strange beast. It is complicated, overwhelming, maybe even a bit scary. However, the sooner you befriend this strange creature, the better you will be equipped for the future. And I believe that the best way to befriend it is to start stacking sats. As a wise old man once said: “Just buy bitcoin, it’s not that difficult.”

Disclaimer: This should go without saying, but I’m afraid I’ll have to make it explicit: This is not financial advice. This is not investment advice. I wrote this letter to have something at hand whenever friends or family reach out to me in all matters bitcoin. I published it because I thought others might find it useful as well. If you don’t know me in real life I’m just a random guy from the internet. I might as well be a dog. Act accordingly.

Get started

Further Listening

Explaining Bitcoin to Traditional Investors by John Vallis
The Beginner’s Guide to Bitcoin by Peter McCormack

Further Resources

Acknowledgments

Thanks to Brekkie and Fab for their valuable feedback on earlier drafts of this letter.
Thanks to Hass for proofreading and his willingness to die on the AutoDCA hill.

Dear Bitcoiners

Tue, 31 Mar 2020 00:00:00 +0000

The madness of this world became obvious in an instant. Everything is changing way faster than most of us ever imagined — but I’m not worried. To the contrary, I’m weirdly optimistic — because of Bitcoin, and because of you.

You probably don’t know me; I probably don’t know you. And that’s perfectly fine. However, I know some of you — and I believe that I know some of you quite well, even if we have never met or met only briefly. I have read your writings, watched you debate each other, saw the things you’ve built, and listened to your voices for countless hours. I don’t care if you identify as a bitcoiner, or as a maximalist, or as a pre-/shit-/multi-/whatever-coiner. I don’t care if you fell down the rabbit hole years ago or if you just got the first glimpse of the honey badger den. I don’t care about your political beliefs, sexual orientation, gender, religion, age, and countless other qualifiers that might be used to put you in a box. The fact that you are here, reading this, thinking about Bitcoin, caring about Bitcoin, is enough for me. That’s why I’m bullish. Bullish on Bitcoin, and bullish on bitcoiners.

Bullish on bitcoiners.

Matt Odell

Bitcoin’s implications are so far-reaching, the innovation so profound, it boggles the mind. The inter-disciplinary nature of this beast attracts minds from countless areas of expertise: computer science, cryptography, mathematics, physics, economics, finance, trading, engineering, the list goes on and on. Bright minds, extraordinary characters, strong opinions, contrarians, idealists trying to change the world — all those and more make up the loose collective we might call bitcoiners.

Honey Badger Don’t Care

Don’t get me wrong: Bitcoin doesn’t need you; it doesn’t need any of us. It’s incentive systems have a way to make sure that Bitcoin will be fine, even if the set of people working on it and using it changes completely. It will be fine, just as it is now as the whole world grinds to a halt.

The current crisis — and the financial repercussions that will inevitably follow — will make it obvious that we need Bitcoin more than Bitcoin needs us. Again, don’t get me wrong: we must not be complacent. We must continue to care, continue to build, continue to educate, continue to proselytize, continue to argue, continue to debate. We find ourselves at the forefront of a battle of ideas, and in this battle, complacency kills.

Ask not what bitcoin can do for you, but what you can do for bitcoin.

Adam Back

If you can contribute by coding, writing, educating, discussing, recording, creating, or simply hodling — great. But make no mistake: Bitcoin is bigger than all of us. And, dare I say it, the current failure of the legacy system is bigger than Bitcoin.

Yes, Bitcoin has the potential to fix many of the underlying issues of our corruptible and broken systems. But we will need a plethora of freedom-enabling technologies to win this war; tools that empower the individual by default, by offering strong privacy guarantees, encryption, and the freedom to use these tools without restrictions.

Shill Lightly

As this global pandemic sweeps through the globe, with hundreds of thousands infected, tens of thousands dead, and millions of people out of a job, priorities shift from trivial to existential. While difficult, it is more important than ever to stay humble and shill lightly. It is all too easy to alienate friends and family by offering an enthusiastic Bitcoin lecture every time you sit at the dinner table. While enthusiasm is laudable, I strongly believe that Bitcoin will be understood by everyone as soon as they are ready — be it out of necessity or out of curiosity. Yes, the timeline just got accelerated. But this is still a marathon, not a sprint. And it might be one of many marathons.

One of the facts of history is that battles do not stay won. Those that matter have to be waged again and again.

Stanley Knowles

The powers that be will neither step away willingly nor silently. And since the battle for self-sovereignty and freedom is one that matters, it will have to be waged again and again.

Protecting An Idea Whose Time Has Come

Bad actors will continually try to undermine Bitcoin, as they have tried in the past. Unfortunately, we have good reason to believe that this will continue. And, unfortunately, we see the trend of undermining and maiming technology everywhere we look. If we look at the internet, for example, we see various interest groups waging war against net neutrality, politicians introducing nation-wide firewalls, websites geo-blocking content, people getting arbitrarily deplatformed, demonetized, or banned.

They say that nothing is as powerful as an idea whose time has come. I believe that Bitcoin’s time has come, and in hindsight, it will be obvious to everyone. Before it becomes obvious, however, swathes of people will try to distort what Bitcoin is and the ideas it represents.

Ideas change the world, but they do it by assuming shape, they do it by taking concrete form.

Stanley Knowles

While Bitcoin’s form is quite concrete since its inception, it is an abstract, intangible form, making it exceptionally hard to grasp. It will take some time until Bitcoin is as ubiquitous as the internet is now. This time — this window of confusion — will be used and abused by lawmakers and charlatans alike. However, it is also a window of opportunity. An opportunity to sharpen our tools, to prepare for the flood, to ship the future faster than they can ban it.

They Are Always Wrong

Undoubtedly, there are plenty of people who don’t want Bitcoin to succeed. They will do everything in their power to prolong the inevitable. They are wed to the current system, gaining from its inherent imbalance. Some are close to the monetary spigot, or willfully ignorant, or enemies of freedom in general. Others are outright evil, aiming to become the foot that stomps on your face, forever.

They told us not to wish in the first place, not to aspire, not to try; to be quiet, to play nice, to shoot low and aspire not at all. They are always wrong. Follow your dreams. Make your wishes. Create the future. And above all, believe in yourself.

Joseph Michael Straczynski

They will continue to tell us that what we are doing is a pipe dream, that what we are aiming for is impossible, that we can’t operate outside of the current systems. They will restrict our freedoms: our freedom to transact, our freedom to save, our freedom to remain private. They will tell us that certain kinds of mathematics and software are illegal. They will continue to justify mass surveillance by trying to sell us the illusion of safety. And they will continue to be wrong.

Speak up. Be outraged. Use alternatives. Build alternatives. Don’t settle for the status quo — we can do better. Bitcoin is what we make of it, and I can’t imagine a better set of people to realize the full potential of this grand idea.

There is nothing better to be on a shared mission with extraordinary people who can be radically truthful, and radically transparent with each other.

Ray Dalio

Stay vigilant. Stay radical. Stay true to yourself. As the world is grinding to a halt, and the fall of Rome becomes more likely than ever, strong characters, sound principles, and truthful conduct are imperative.

The stage is set, the drama is unfolding, and as the crescendo comes we must not give in to tyranny. The path will be twisted and bumpy, and I’m honored to walk it to the end, with you on my side. We got this.

Acknowledgments

Thanks to Hass, John, and Dennis for their valuable feedback.
Original artwork “Citadel of Exile” by Sam Keiser

Dear Legacy People

Fri, 20 Mar 2020 00:00:00 +0000

The world you know and love is no more, even if it isn’t obvious to every one of you just yet. We will look back at this moment in time, the months we are currently living through, the weeks that will mark the line between the pre-virus and the post-virus world. One thing is clear: we are past the inflection point.

There are decades when nothing happens, and there are weeks when decades happen.

Vladimir Lenin*

As the events around the COVID-19 pandemic unfold, the fragility of our global systems becomes painfully obvious. This health crisis is triggering a financial one, and if we don’t get our act together, things will go from bad to worse.

The Legacy System is Crumbling

Both our money and our financial system has fundamental issues. Ruled from the top down by unelected decision-makers, these structures are not equipped to handle complex problems. Even worse, trying to fix a complex system by heavily interfering with natural processes will turn an annoying mosquito problem into a deadly snake problem (with some frogs in-between).

A new type of thinking is essential if mankind is to survive and move to higher levels.

Albert Einstein

Centralization is efficient until it isn’t. I’m afraid that most of us are going to learn this lesson the hard way: one by one, central points of failure will crumble under the pressure of current world events, and all we can do is watch our fragile legacy systems collapse (or turn into Orwellian nightmares).

I’m not suggesting that all “old” systems are obsolete — they aren’t. I’m suggesting that we are transitioning to a post-virus world, and it will be impossible to understand what is going on — and how problems might be solved — if you aren’t equipped to understand and use the tools of this new era.

A New Type of Thinking

The tools of the post-virus world need to be transparent, open, and freedom-enabling. Gatekeepers, censors, and arbitrary restrictions won’t help us to solve the problems we are facing — they will only make things worse. Information wants to be free, and we will need all the information out in the open to fight the battles yet to come.

I can’t tell you what kind of tools will emerge. Instead, let me list some things that are both of the utmost importance and difficult to understand/accept if you come from the legacy world:

bitcoin
the internet
social media
citizen journalism
memes and misinformation
open-source and free (libre) software

Others aren’t as hard to understand, but equally important: encryption, open hardware, biohacking, DIY biology, 3d printing, and other forms of distributed manufacturing.

These tools and the new type of thinking that comes along with them will lead to different structures, a different way of doing things, different outcomes. It might seem strange and inefficient at times, and that’s okay. The important part is that we move away from fragile systems and central points of failure, building robust, and even anti-fragile systems for generations to come.

Fragile, Robust, and Anti-Fragile Systems

The world is a scary, complicated, and chaotic place. Our interconnectedness and interdependence have drastic and unforeseen consequences, as the current pandemic shows so clearly.

Someone ate a bat in China and now you don’t get to retire. Funny how the world works.

Jeremy Ross

Many systems got centralized over time, moving from robustness to fragility: the global financial system, various supply chains, large parts of our media apparatus, and even the money we use daily.

Complex, large-scale problems require organic, bottom-up, emergent solutions. We, as a society, need to make sure that robust solutions can emerge, which implies that we need to protect personal liberties and encourage personal responsibility more than ever.

It would be great if a benevolent ruler could step in and solve all our problems. Unfortunately, every benevolent ruler transforms into a totalitarian dictator given enough time. And I hope we can all agree that we don’t need any more of those.

I would love to end on an optimistic note, but the future ahead will be dark and bumpy, especially if the legacy world is all you know.

Bitcoin's Habitats

Sun, 01 Mar 2020 00:00:00 +0000

As I have argued previously, Bitcoin is a living organism. But where does this organism live, exactly? As with many questions in the world of Bitcoin, exact answers are hard to come by. Living things have fuzzy edges: beginnings and endings are hard to pin-point, differentiation is more-or-less arbitrary, and what was classified as a wolf today might evolve to be a dog tomorrow.

Bitcoin has no rigid specification, no absolute finality, no fixed development team, no final security guarantees, no scheduled updates, no central brain, no central vision, no kings, and no rulers. It is a decentralized organism, organically evolving without central planners. The lack of any centralization is the source of Bitcoin’s beauty, it’s organic behavior, and it’s resilience.

Bitcoin is everywhere and nowhere, which makes figuring out where this thing lives a daunting task. However, it turns out that there is a space it lives in. Multiple spaces, as we shall see.

The Habitats of Bitcoin

While classifying the habitat of a decentralized organism isn’t trivial, we can look at the constituents of Bitcoin to make the task a bit easier. As outlined in the last article of this series, Bitcoin lives across domains, with one foot in the purely informational realm (ideas and code) and one foot in the physical realm (people and nodes).

An awareness of Bitcoin’s environment(s) might help to better understand this new form of life. No organism can be meaningfully studied in isolation, and Bitcoin is no exception. As Alan Watts pointed out, one has to be aware of the basic unity every organism forms with its environment.

For the ecologist, the biologist, and the physicist know (but seldom feel) that every organism constitutes a single field of behavior, or process, with its environment. There is no way of separating what any given organism is doing from what its environment is doing, for which reason ecologists speak not of organisms in environments but of organism-environments.”

Alan Watts

With that in mind, let’s take a closer look at the organism-environment(s) we are dealing with. As outlined above, Bitcoin’s ideas and code inhabit one realm, and Bitcoin’s people and nodes inhabit another. To stick with tradition, let’s call the physical realm “meatspace” and the purely informational realm “cyberspace” — even if, as always, the lines might be fuzzy around the edges.

The “soul” of Bitcoin, so to speak, lives in cyberspace. There, Bitcoin absorbs useful ideas and incorporates them into its code. As with all living things, something is useful if it helps an organism to survive. While Bitcoin has various self-regulatory mechanisms to react to the environment, new ideas may be necessary for survival if changes are drastic enough.

The “body” of Bitcoin, like all bodies, is living in meatspace. Nodes, hard drives, cables, and other things come together in an intricate dance, pushing around electrons, changing zeros to ones and vice-versa, making sure that Bitcoin’s heart beats about a thousand times a week.

Living things have an interest in staying alive, and the Bitcoin organism is no exception. Bitcoin found an ingenious way to ensure that it stays alive: it pays people, as Ralph Merkle pointed out. People — and increasingly, organizations — are incentivized to keep it alive. They shape the physical world to Bitcoin’s liking, feed it energy, renew its hardware, and update its software to keep it alive.

The fact that Bitcoin pays us to keep it alive opens up a third space: a space of financial transactions, value, and mutual beneficial exchange. Let’s call this space “finspace.”

To understand finspace, we will have to examine the other side of this coin. So far, we only examined the side with an uppercase B: the Bitcoin network. But there is also bitcoin — with a lowercase b — which is the unit of value itself, brought into existence by every copy of the ledger.

These bitcoins, while deeply embedded in the amber of the ledger, are traded worldwide on various markets and marketplaces. And since these bitcoins — and their value — are critical for Bitcoin’s survival, we will have to recognize finspace as the third space this strange beast lives in. Note that finspace, strangely enough, is solely inhabited by bitcoin with a lowercase b.

In total, we can identify three distinct environments which the Bitcoin organism inhabits:

Cyberspace: the world of ideas and code.
Meatspace: the world of people and nodes.
Finspace: the world of value and markets; the world of dollars and sats.

Understanding these habitats becomes increasingly important, especially as the climate in one — or more — heats up.

The Climates They Are A-Changin’

The three spaces outlined above — cyberspace, meatspace, and finspace — have different restrictions; different climates, so to speak. In short: they operate under different rules. Once these rules change drastically enough, people will say that “the political climate is heating up” and reports on “the coming financial climate” will be written. Citizens will be unable to speak and act freely. If things change drastically enough, people will rise up in protest, or, if all else fails, flee.

Cyberspace: While we don’t have precise words for it, it is obvious that the climate in cyberspace has changed quite drastically in the last two decades or so. The idealistic, utopian ideas which were the foundation of most of the internet were perverted by the advertisement-driven surveillance companies which are the giants of today.

People and politicians are slowly waking up to the strange reality we are living in: the fact that Facebook can manipulate moods and sway elections is as disturbing as the fact that Google knows you better than you know yourself. Edward Snowden showed that the most paranoid netizens were right all along: everyone in cyberspace is under constant surveillance, without suspicion, by default.

While the western world does not immediately feel the repercussions that come with living in a constant state of surveillance, Chinese citizens are gathering first-hand experience with each passing day.

In the western world, the consequences are advertisements which range from annoying to spooky. In China, the consequences are frozen bank accounts, an inability to buy train or plane tickets, elimination of creditworthiness, automated fines for trivial offenses, and more. Voicing the “wrong” opinion — online or not — can lead to restricted access to schools, hotels, and jobs. And after ruining your life with the flip of a bit you will be publicly named as a bad citizen and the government will take away your dog. If that doesn’t sound dystopian enough for your taste I bet that it will be in a couple of years. Remind yourself that this is only the beginning.

In the “free” world, things are more subtle. Multiple efforts are underway to curb net neutrality, the very cornerstone of the internet. Legislation is being passed which is inherently incompatible with the laws of cyberspace. It seems like the last battle of the Crypto Wars is yet to be fought as politicians are calling for “responsible encryption” and the ban of certain CAD files. Companies are in charge of the speaker’s corners of cyberspace and are making arbitrary decisions on what can be uttered by whom and what is off-limits.

Bitcoin knows no borders, no jurisdictions. However, it has to conform to the laws of cyberspace — and if these laws change, e.g. if large parts of the world block Bitcoin traffic and/or the usage of TOR, the Bitcoin organism will have to adapt.

Meatspace: Meatspace climate differs wildly from jurisdiction to jurisdiction. Some bastions of freedom still exist, but once you try to board an international flight it becomes obvious that your right to privacy and your freedom to bring a bottle of water with you are null and void.

Protests across the globe indicate that the powerless are fed up with the powerful, who do everything they can to stay in control and solidify their positions of influence.

History shows that governments do not shy away from using their power. In 1933, Executive Order 6102 was signed, effectively forcing the whole population of the United States to hand over their gold and gold certificates to the government.

Yes, seizing bitcoin is way harder than seizing gold — in some cases even impossible. But it would surprise me if those who currently control our money — the governments and central banks of this world — would simply roll over and let Bitcoin march on unhindered. Governments have a monopoly on violence, and they are able and willing to abuse this violence in their own interest.

With Bitcoin, however, people can flee a country with their wealth intact. While this is definitely not easy, and not something I would wish on anyone, it is now possible.

Finspace: Where should I even begin? The current, debt-based financial system has an appetite for printing money which is beyond belief. Quantitative Easing (QE), Negative Interest Rate Policies (NIRPs), currency wars, hyperinflations, and a looming recession are just a few of the recipes of the global instability soup which is currently brewing.

The current financial system seems so far removed from common sense and reality, that all the jargon in the world won’t be able to stabilize this house of cards. People know that our money is broken, which is why they flee to buying real estate, stocks, and all kinds of complicated financial constructs to preserve their wealth. In the current system, you have to be an investment expert just to hold your value.

And we haven’t even talked about the looming recession, and the virtual inevitability of the next financial crisis yet. Yes, governments might be able to kick the can down the road by printing ever more money. But no road is endless, and the experiment which is fiat money will come to an end, one way or the other.

How bitcoin will react to a catastrophe in finspace is anyone’s guess. Some people might flee from their failing fiat currency into bitcoin, using it as a risk-off asset. Others might sell bitcoin to buy something they consider more stable, such as real estate or land. A rising number of people will identify bitcoin as the best money we ever had, shunning other assets and other monies on the quest to stack as many sats as they can.

However it might play out, Bitcoin is the cure for many of the current system’s ills. It is hard money which doesn’t devalue over time. It is an incorruptible system which forms the basis of a new financial reality.

It can’t be changed. It can’t be argued with. It can’t be tampered with. It can’t be corrupted. It can’t be stopped. It can’t even be interrupted.”

Ralph Merkle

In addition to the above, it seems to have many indirect effects. It lowers the time preference of those who use it. It incentives users to have better personal and operational security. It incentives individuals and companies to have better digital hygiene. It propels the development of chip manufacturing and encryption technology.

While Bitcoin definitely influences its environments and vice-versa, how Bitcoin reacts to drastic changes is yet to be seen.

Migration

Bitcoin lives on the internet, as Ralph Merkle points out. The internet, however, is not a necessary requirement for Bitcoin to work. Bitcoin is text — pure information — and every system capable of transmitting (and storing) information is a potential habitat for the Bitcoin organism. The internet just happens to be the most suitable habitat which currently exists, since it is the most efficient system to transmit information we have to date.

Cyberspace: The Bitcoin organism could migrate to other environments, and multiple efforts are underway which enable Bitcoin to spread to places where access to Internet infrastructure is limited or non-existent. As of this writing, Bitcoin transactions (and LN invoices) have been sent via radio waves, mesh, and satellite networks — just to name a few. All of these can be seen as Bitcoin conservation efforts, so to speak.

Whether we will see the migration of Bitcoin to another system in the decades and centuries to come depends, in essence, on whether the internet will remain a suitable habitat or not. If the online climate changes drastically enough, we might see the migration to even more resilient, less restrictive environments.

Meatspace: We can already see that mining facilities pop up where energy is cheapest or even stranded. In essence, mining is done where it makes the most sense — economically speaking. The same is true for running nodes. If people can run nodes at low risk and near zero marginal cost, they will. Thus, visualizing Bitcoin on a map, nodes and mining facilities migrate geographically from unfriendly places to friendlier places over time. Unprofitable mining facilities will shut down, profitable mining facilities will go online. The same, again, is true for nodes.

Public bitcoin nodes. Source: /u/SondreB

Increasingly, people will migrate to jurisdictions which are more favorable to their bitcoin holdings. And if you want to start a Bitcoin company, you might also move to a jurisdiction which is more favorable to you and your future business.

Finspace: In the last 10 years, many people decided to buy bitcoin, effectively feeding the Bitcoin organism by investing in it. This capital allocation will continue as more people understand the nature of this beast, and the ultimate goal of Bitcoin: the separation of money and state.

What investors describe as portfolio balancing and allocation of capital can be seen as a migration of value from worse assets to better assets; from bad stores of value to better stores of value. Bitcoin, being the ultimate asset in terms of portability, verifiability, divisibility, scarcity, and unseizability, will continue to suck up value and grow in the process.

Conclusion

Bitcoin lives at the intersection of three spaces: meatspace, cyberspace, and finspace. These spaces have different laws, different rules, and different climates. To fully understand any organism, we must not only look at the organism itself, but examine the organism-environment holistically.

Because of its decentralized nature, Bitcoin is able to overcome many, if not all obstacles in its environments. It can migrate to favorable jurisdictions in meatspace, use different transportation and storage media in cyberspace, and feed on the instability of other asset classes in finspace.

Whatever the future may bring, Bitcoin is equipped to survive and thrive in the various environments it lives in. It is remarkably resilient — well adapted to survive any coming storm, however perfect it may be.

Acknowledgments

Thanks to Jannik and Raph for their feedback on earlier drafts of this article.

Bitcoin's Eternal Struggle

Sun, 22 Dec 2019 00:00:00 +0000

Bitcoin works. No matter what other opinions you hold about this strange phenomenon, it undoubtedly works, marches on, or, as I (and others) have previously argued, is alive. Even if most of the world would grind to a halt, the Bitcoin network would continue to produce valid blocks every 10 minutes or so.

Bitcoin works because of many things: game theory, economic incentives, cryptography, ingenious engineering, resilience on a network level, and so on and so forth. Killing Bitcoin is hard. Really hard. Killing Bitcoin is like killing an idea. An idea that is stuck in the heads of hundreds of thousands of zealous individuals.

First of all, it is quite hard to shut down the internet globally; and secondly, Bitcoin can transcend the internet. Everything which can transmit data can be used to transmit bitcoin transactions, and everything which can hold data can store a copy of Bitcoin’s block chain. It’s just a ledger; the whole thing is just information.

Curiously, the Bitcoin network is embodying the eternal struggle of life: the struggle against entropy; a battle on the edge between order and chaos.

To understand this chaotic struggle — and how Bitcoin thrives because of it — it is helpful to briefly discuss the following concepts: entropy, randomness, and information. I hope to convince you that these concepts are related and that they are essential in Bitcoin’s ongoing struggle for survival.

Let’s dive in.

Entropy

In computing, entropy can be used to measure the randomness of a data source. In cryptography in general, and in Bitcoin in particular, a good source of entropy is essential to keep you secure. Mess up the entropy of your private key (aka your seed phrase) and your bitcoins will be my bitcoins soon.

Note: the technical term for this unwanted transfer of coins is rekt. You don’t need to know what “getting rekt” means in detail, or the many ways in which you can get rekt; it is enough to know that you should avoid such a situation at all costs.

Entropy is quite a complicated concept, but in general terms, it describes how random or how compressible something is.

High entropy: randomness.
Low entropy: orderliness.

Or, in other words, with a nod to Tsachy Weissman:

High entropy: not very compressible.
Low entropy: very compressible.

There are complicated formulas and quite a few disambiguous definitions of entropy. The concept finds applications in classical thermodynamics, statistical thermodynamics, quantum statistical physics, order and disorder, life, astrophysics, and more. It is also a measure of irreversibility.

In Bitcoin, reversibility and irreversibility are probabilistic. If enough people with enough hash power collude transactions could be reversed. Absolute irreversibility does not exist in Bitcoin. Final settlement is never final, but always probabilistic. Yes, the chances of reversal might be beyond astronomical, but nevertheless, final settlement does not and should not exist in Bitcoin. Nakamoto consensus forbids it.

The first law of thermodynamics, also known as the law of Conservation of Energy, states that energy cannot be created or destroyed in an isolated system. The second law states that the entropy of any isolated system always increases, and the third law states that the entropy of a system approaches a constant value as the temperature approaches absolute zero.”

Knut Svanholm

In Bitcoin, entropy is important for multiple reasons:

Secret information should be generated by high-entropy data sources
New blocks reverse entropy locally, i.e. create order out of chaos
Bitcoin’s security model relies upon chaotic processes
Validation relies on deterministic processes
Everyone can validate structured data
Nobody can guess random data

While the above speaks in absolutes (everyone and nobody), the truth is more nuanced: Again, Bitcoin is probabilistic in nature, thus, in theory, one could guess a private key just like in theory you could find a billion valid blocks in one millisecond.

Details aside, we will try to keep it simple here. In general, if you have two coins, the entropy of this system is two. As in: you can describe the whole system with two bits: 00, 01, 10, 11.

2 bits of entropy

Flip both coins at the same time, and you will end up with either tail-tail, tail-heads, heads-tail, or heads-heads. If you are a fair coin flipper, the chance of each combination will be 25%. Imagine a system that flips hundreds of coins at once, and you have something which could be used to generate a private key.

Randomness

Randomness is essential to cryptography. At the root of all secret communication is some form of information asymmetry: you know something a potential eavesdropper does not.

A good secret is like a good password: randomly generated, i.e. coming from a data source that has a high degree of entropy.

Random noise. How much information is contained in this image?

If something is “perfectly” encrypted, an eavesdropper can not distinguish what was said from random data. This is the purpose of proper encryption: you want to hide what was said, and, if possible, even hide the fact that something meaningful was said at all.

“Good” randomness: not compressible / high entropy / secret / secure.
“Bad” randomness: compressible / low entropy / guessable / insecure.

Bitcoin doesn’t use encryption per se. The ledger is public and transparent by design, enabling anyone to audit the whole system with the will to do so. Bitcoin uses cryptographic signatures and cryptographic hashes, both of which produce quasi-random outcomes. And if you know the secret, you can unlock some coins (using your private key), add new blocks to the block chain (using the nonce you found), or prove that you are who you say you are (by signing a message, which at least proves that you are in control of one or multiple keys).

Only you know your private key. Nobody else should know your private key. Only you, the successful miner, found the nonce for the next block. That is information asymmetry. That is what makes Bitcoin work.

All cryptographic systems work because of information asymmetry. And curiously, properly encrypted data is indistinguishable from random data. Otherwise, an eavesdropper could make some sense of the encrypted message, which in turn would mean that the encryption used isn’t very good.

Information

What is information, anyway?

People often say that Bitcoin is thermodynamically secured. While this is true, I’d like to dig a little deeper. What does thermodynamically secured mean, exactly?

It means that — as far as we know —changing things in our universe requires energy. When I say “changing things” I mean it: change anything at all in our universe, and you will need to “use” energy — put in some work — to change that thing.

Move a chair? You have to put in some work. Grow a tree? You’ll need the energy of the sun to turn CO2 into wood. Do a calculation? Energy is required to manipulate whatever is holding the data. Store the outcome? You’ll need energy to arrange (and protect) the atoms for storage, no matter what medium is used.

Bitcoin lives mostly in the informational realm, and just like all other information systems, it needs to store and process the information via a physical medium. Thus, if you change information in Bitcoin, you effectively change a thing in the real world. Whether that thing is a solid-state disk, USB stick, hard drive, optical storage medium, or something else doesn’t matter.

The fact that changing things — or, in other words: flipping bits — requires energy, is the root conundrum of all computation. It is the reason why your computer makes a bunch of noise and gets hot if it does a lot of “thinking.” It is the reason that computer science students have to study the Big O notation and software companies love to ask questions about it. Changing a zero into a one requires work, and no matter how fast you are working, you still need to expend some amount of energy. According to physics, there literally is no such thing as a free lunch. Flipping bits is work, which requires energy.

And here is the thing: Bitcoin utilizes the fact that the difference between hard computational problems and exponentially hard computational problems is big. Mind-bogglingly big.

Alright. Back to our original question: What is information, anyway?

Sorted colors. How much information is contained in this image?

Information relates to both knowledge and meaning. It is the opposite of not knowing, and the opposite of information in data is randomness. In other words: if you are not able to make sense of some data, it might appear random to you.

Sensible information: quite compressible.
Nonsense information: not very compressible.

Pi might help to clear up what I’m trying to say: 3.141592653589793… can be “compressed” into π, or the circumference of a circle with the diameter of one.

As a computer programmer, you could think of this concept as follows: can I write a computer program that generates the information I’m trying to convey, which is actually shorter than the information itself? (That’s what I mean when I say “compressible”.)

In short: sense and nonsense, order and chaos, or information and randomness are intricately linked. One could say that they are two sides of the same coin, and both concepts are related via something we call entropy.

Information implies structure and structure benefits from redundancy. The most ancient structures in nature have been adapted for survival by evolution. At the root of it is DNA, two chains that coil around each other to form a double helix. Symmetric, redundant information. The properties which allow DNA to survive and thrive are embedded in its processes: redundant structure, a copying mechanism that relies on this structure, the baked-in error correction which leads to four bases instead of two, etc.

Bitcoin, in comparison, is simpler: one chain, two bits, no error correction (information is copied perfectly). However, as with DNA, the properties which allow Bitcoin to survive (and thrive) are embedded in the replication process: a chaotic race to find new blocks, replication of blocks in the network, and replication of the software (and the ledger) on as many nodes as possible. Further, when we talk about the Bitcoin organism, error correction is equivalent to being alive. The network self-validates with every beat of the heart, every ten minutes or so. This is what makes the bitcoin organism extremely robust as well. It is designed for survival.

In Bitcoin, high entropy information is usually kept secret. Your private key should, as the name implies, be kept private. It is for your eyes only. Which particular nonce you just tried, i.e. the work you already did when mining a new block, is usually kept private as well. You don’t want your competitors to know which numbers produce invalid blocks and can be skipped.

Chaos on the left, Order on the right.

Bitcoin utilizes both order and chaos to create a system that grows — and even thrives — between these extremes. It utilizes information asymmetry and an ingenious incentive structure which leads to a global competition to find Bitcoin’s secrets.

Which processes are orderly, which are chaotic, and how Bitcoin is able to grow on the edge between order and chaos will be explored in the next section.

Growth between Order and Chaos

What makes the Bitcoin network tick? Again, there might be many answers to this question, but the only thing that is truly ticking in the Bitcoin network is the global clock: a block clock, where every block is one unit of time.

Currently, we call this process mining because new bitcoins are generated for every valid block that is mined (read: found). We call this the block subsidy, and it is an incentive structure to bootstrap the network.

In a sense, the Bitcoin organism “grows” on the edge between order and chaos: finding new blocks is a chaotic process, and its result is a very orderly list of transactions: the Bitcoin block chain, also known as the ledger.

From a “finding new blocks” point of view, we are still extremely early. Only ~10 years in. The block reward era will go on until the year 2140 or so, which means we are about 13% into the bootstrapping phase of Bitcoin: the reward era.

Satoshi undoubtedly knew that this was a long game. The era where fresh blocks are associated with a reward is only one phase of the Bitcoin game. Note that this phase is 6930000 blocks long. With an average block time of ~10 minutes, the reward era turns out to be 131 years long.

2019: Early days of the Bitcoin Reward Era

There will be a time where those who are tasked with finding new blocks are rewarded mostly via the networks’ fee market, as Dan Held brilliantly argued in Bitcoin’s Security is Fine. The point in time where the fee market takes over will be somewhere between the year 2020 and 2140. Either that, or Bitcoin will die, or some museum computers will try to find new blocks at an economic loss.

After this point in time, we will probably still talk about “mining” bitcoin, even though all the “miners” won’t be producing any new bitcoins. All 21 million BTC — or 2,099,999,997,690,000 sats, to be precise — will have been mined. No new bitcoin will be added to the pool of existing coins in circulation.

Miners — if we still call them that —will still try to find new blocks, mind you. But the bitcoin moved by these blocks will have a long economic history. Gone are the days where miners award themselves new bitcoin in the coinbase transaction, to be spent after 100 blocks.

Will bitcoin still exist in 5000 years, and eventually beat gold as the de-facto money of humanity? I don’t know, but important information is extremely hard to kill. I expect bitcoin to live for a very long time, just like ancient scriptures and religious texts survive to this day. It is just information, all of it, and it can transcend the medium it is printed on.

Of course, I expect something approximating hyperbitcoinization to have happened until this point. We will have a circular bitcoin economy, and bitcoin banks will globally settle vast amounts of value between them. What private citizens — or sovereign individuals, to use a more fitting term — will use is yet to be seen. I doubt that the bitcoin base layer will be used by persons like you and me. And that’s perfectly fine.

With the stage set, and concepts like order, information, randomness, and entropy in mind, let’s take a look at some bitcoin concepts. We will distinguish them visually: from chaotic (left) to orderly (right).

Bitcoin grows between order and chaos.

While the framing of order and chaos is useful, it is neither precise nor universally applicable. However, I believe that thinking about the parts which make Bitcoin tick in this way is a helpful exercise, and I believe that the core point — that bitcoin lives, grows, and thrives on the edge between order and chaos — is profoundly true.

Let’s ponder on these concepts for a bit.

Private key: Chaotic information, very high randomness. Secret information which is best kept private. Maximum entropy for maximum security. If your private key is not random, you’re gonna have a bad time.
Nonce: Chaotic information, high randomness. A nonce is a specific number. Miners are in constant competition to find the next nonce which produces a valid block. Multiple numbers might fit the criteria, but the mining process is very much like finding one random number.
Fresh block (before broadcast): Newly found blocks are the outcome of the chaotic process which is finding a nonce. Before blocks are broadcast, blocks can be understood as secret information. Fresh blocks can be ambiguous, since multiple blocks can form a valid chain tip at the same time. It is in your best interest to broadcast a fresh block immediately to everyone to reap the reward. Fresh blocks are only held back if you are an attacker, or very stupid, or both.
Chain tip: Forming the chain tip is a process which is mostly orderly, but again, it is generated by a chaotic process. As mentioned above, the chain tip can be ambiguous. One version of the chain tip will survive, the losing versions will become orphan blocks. You can validate the correctness of all information in all blocks up to the chain tip. The chain tip reflects the current time in Bitcoin.
Orphan blocks: Orphan blocks are part of the orderly, natural growth process of the Bitcoin block chain. Valid blocks are discarded on a regular basis. If two valid blocks are found at roughly the same time, they fight a probabilistic battle for survival. In the long run, only one block can win this race. The losing block will become an orphan block and die a lonely death.
Unconfirmed transactions: Orderly structure which can be easily validated. An unconfirmed transaction can be valid or invalid. Valid transactions are included in blocks based on economic incentives, which is — again — a probabilistic, market-driven process. Invalid transactions are discarded.
Buried blocks: Orderly structure generated by a chaotic process, some time ago. The possibility of a reorg (re-organization of buried blocks) becomes exponentially unlikely because the probabilities against it multiply. Example: if every block has a 50% chance to reorg, the chance of a 6 block reorg would be 1.5%. Actual numbers are closer to 0.31% per block and 0.0000000000008875% for a 6 block reorg.
Confirmed transactions: Orderly structure which can be validated very easily. Irreversibility is probabilistic and dependent on block height. Once a transaction is confirmed, it becomes more final the deeper it is buried in the block chain.
Public keys: extended public keys (xpub, ypub, zpub) are generated by a
deterministic process from a random seed — your private key.
Block time: Valid blocks are found, on average, every 10 minutes. This is what makes the Bitcoin network tick. Bitcoin’s heartbeat is extremely regular when measured in blocks. While still regular when measured in human time, mining is a fundamentally probabilistic process, and thus there is a real possibility that some blocks are found very quickly or comparably late.
Difficulty adjustment: While the difficulty adjustment is a very orderly process, it can be a bit chaotic if hash power changes drastically (as it did in August 2017, because of the contentious bcash hard fork). Difficulty adjustment is based on block time, which is only probabilistically linked to human time.
Bitcoin supply: Bitcoin’s supply is fixed since its inception. The issuance of new bitcoin is embedded in Bitcoin’s consensus code and is thus virtually impossible to change.
Whole ledger, deeply buried blocks (aka the Bitcoin block chain): Orderly, sequential, structure which is pretty much unambiguous up to the chain tip and can be validated by everyone.
Ledger validation: Validation is an orderly, sequential process. The outcome of this process is a simple boolean value for each block: true or false, valid or invalid. Every node arrives at the same block height independently, which is what forms Nakamoto consensus.

The fact that all of the above, the whole machinery, works in concert to provide a yes or no answer to the question “Is this what actually happened?” will never cease to amaze me.

Let me repeat the above. The whole purpose of the Bitcoin organism is to decide what happened when to whom. How much does everyone have, and how did this come to be? The how is important, because it allows everyone to audit everything, and come to the same conclusion.

In short, Bitcoin utilizes chaotic processes (mining, private key generation) and information asymmetry (public information which is widely shared, secret information which is not shared at all) to build up a structured, orderly, and permanent record, that can be audited and verified by everyone.

This is Bitcoin. This is Nakamoto consensus. This is the innovation, and this is also what makes bitcoin the best and hardest money that ever existed on planet earth.

You might call it open, permissionless, borderless, neutral, censorship-resistant, public, sound, antifragile, and a couple of other adjectives.

I call it Life. And we all call it Bitcoin.

This article first appeared in The Bitcoin Times, Edition 2.

Bitcoin Boots on the Ground: Venezuela

Thu, 21 Nov 2019 00:00:00 +0000

José is a bitcoiner. Like many others, he discovered bitcoin a couple of years ago and is fascinated by the technology. Unlike many others, however, José lives in a country where the traditional financial system ceased to work: Venezuela.

“It’s almost as if Venezuela was what Satoshi had in mind when he invented bitcoin over a decade ago,” José mused when I talked to him. “A laboratory to test his ideas, if you will.”

A lot of people in Venezuela, as elsewhere, dismiss bitcoin as just another speculative asset. “They don’t understand the nature of this very different beast.”

José was lucky enough to understand the nature of this beast earlier than most. And he was lucky enough to earn some extra income, which allowed him to invest a bit of money in bitcoin.

He is well educated and has a day job which would earn him thousands of dollars in most other countries. In Venezuela, he is earning approximately $7 a month. Due to the failure of the monetary system in his country, José is working for free, essentially.

Living in Venezuela gives you a certain advantage in understanding how fiat money is essentially broken — we have the worst fiat money in the world.

Bitcoin plays an interesting role in Venezuela. On the one hand, some people use it to store their wealth and protect themselves from hyperinflation. On the other hand, people use it as a borderless payment system.

“A lot of people in Venezuela survive solely through remittances of money sent from family abroad,” reports José.

While many people are receiving and earning money in bitcoin, others choose to mine bitcoin — if the circumstances allow it.

“You would be surprised how many people have underground mining rigs here,” José tells me. “Maybe that is part of the reason why we have had blackouts nationwide,” he says half-jokingly. “Pretty crazy shit, eh?”

Pretty crazy shit indeed.

I asked him if he is worried about his personal safety, and if there are any crackdowns on bitcoiners in Venezuela. “I think the government has other priorities to worry about,” was his response.

The current situation in Venezuela leads to some interesting problems. Let’s say you are running an international business, and you have bank accounts in different countries. If you want to cash out, you would have to transfer your money to a Venezuelan bank, which would only allow you to withdraw in Bolivares, which are essentially worthless.

The reason for this restriction is, of course, government intervention. People are not allowed to withdraw and hold other currencies. They are forced to use the worthless Venezuelan bolívar, which continues to lose 90% of its purchasing power in a matter of weeks.

People are starting to catch on to the idea that Bitcoin can actually fix some of the problems that the Venezuelan people are facing. “My friend came to me because he knows I am ‘the bitcoin guy’ and was wondering if Bitcoin could fix this.”

Bitcoin could indeed fix this, but with the current stance of the government, the use of bitcoin is pushed underground.

BTC does not seem like something Maduro would want to have widespread adoption in Venezuela. Because it means giving people economic freedom.

Currently, it seems, the government is not interested in providing this freedom. It seems that the Venezuelan government is interested in economical oppression and control, and not the opposite.

However, José thinks there might be reasons for optimism: “Given the economic chaos and free-for-all that a Venezuela with a failed state has, Maduro has to back down on socialist reform and allow for free and open markets to operate.”

Such free and open markets could be powered by Bitcoin, which is free and open by nature. It is, however, still too complicated to be adopted by the masses. José hopes that future development will lead to more ease of use, and more intuitive interfaces. One such interface could be an SMS wallet — denominated in bolivares and sats — that uses LocalBitcoins under the hood.

Speaking of LocalBitcoins: Even with the recent compliance with KYC and AML regulations, which arguably make the use more cumbersome, LocalBitcoins remains one of the most popular ways to buy and sell bitcoin in Venezuela. Bisq would be a decentralized option, but for the time being it lacks support for payment methods used in Venezuela. And the volume is simply too low.

“Have you ever seen any Akira Kurosawa movie?” José asks. “There is one called Dersu Uzala, about a Russian exploration in Siberia and a local guide named Dersu Uzala.”

José sends me a link to the scene and explains what is happening: the leader of the expedition, Captain Arsenyev, and Dersu are caught in the Russian tundra as nightfall is approaching. Dersu, being a local nomadic hunter, starts hectically gathering bushels of grass to build a shelter before the brutal cold of the night hits them with full force. “That’s an apt metaphor of my situation and how I see the future collapse of fiat money and central banking,” José tells me. “I am frantically scraping up satoshis because I, too, don’t want to be caught in the open steppes by nightfall.”

A couple of weeks after we first talked, José reached out to me to let me know that he has found an even better way to collect his bushels: earning bitcoin. He managed to land a job online and is now earning more per hour than he was earning per month doing his regular job.

Coming from a first world country, it is easy to forget that Bitcoin has the power to completely change people’s lives. Bitcoin changed José’s life, and it will continue to change the lives of people in dire circumstances as nightfall approaches. Let’s just hope that it will be a short night and that enough people realize that bushels of grass can build a shelter. Or, in José’s words: “Buy cheap satoshis while you still can. And hodl on!”

This article first appeared on Bull Bitcoin’s Medium publication.

Sanity

Sat, 09 Nov 2019 00:00:00 +0000

Sanity. Faith. Has the world gone mad? Or is it me?

I must confess that I lost faith in the sanity of the world.

H.G. Wells

Sanity. What defines sanity? Some people say sanity is best outsourced to other people. Other people will tell you if you are insane or not. Other people will make you feel “normal” - whatever that means.

People seem to lose their sanity if they are isolated for a long time. People also seem to lose their sanity if they are awake for multiple nights. Doing both will drive anyone mad.

Have I need of mad men, that ye have brought this fellow to play the mad man in my presence?

Achish king of Gath, Bible, Samuel I, 21:15

But what does losing your sanity even mean? Are you automatically insane, if you have lost your sanity once? Can you be insane for a short period, and regain your sanity? Can you regain your sanity by sheer will alone? And what is this will we are supposed to have, anyway?

Will and free will are peculiar things. We seem to have it, do we not? And if we wouldn’t have it, what would change? Nothing? I have thought about the concept of free will quite a bit. Enough to drive myself insane, probably. But then again: did I really drive myself insane? Did I have a say in this? And who is this “I”, anyway?

Things get very weird very quickly if you start asking questions like this. I guess that’s probably why most sane people don’t particularly like asking these questions.

If insanity is doing the same thing over and over again and expecting different results, then sanity must be doing different things at different times expecting the same results. That doesn’t seem right.

I’m not exactly sure what I’m doing. I seem to be doing what seems right to me in any given moment, not expecting any results. Sanity or insanity? Probably a little bit of both.

How to Kill Bitcoin

Thu, 03 Oct 2019 00:00:00 +0000

You don’t.

Joy

Sun, 25 Aug 2019 00:00:00 +0000

Occasionally in life, there are those moments of unutterable fulfillment which cannot be completely explained by those symbols called words. Their meanings can only be articulated by the inaudible language of the heart.

Martin Luther King, Jr.

Joy. Delight. Bliss. Glee To enjoy oneself, or what one does, or what one experiences. Not too long ago, I thought that these moments of pure, unadulterated joy were nothing but short bursts in-between dull and gray drudgery; small gifts which make life bearable. Oh, what a horrible thing to think.

I now realize that the theft of joy in my life was systemic, and I have the suspicion that I was not the sole victim of this crime.

Joy: finding meaning in a meaningless universe, hope in a hopeless world, delight in breathing, profundity in what seems ordinary. The world is truly magical if one dares to look at it properly.

Joy! Joy! I did not know that all this world is so much part of me, that we are all one army, that windflowers and stars struggle to right and left of me and do not know me; but I turn to them and hail them.

Nikos Kazantzakis

For the first time since a long while, I can truly say that I enjoy what I am doing. And what I’m doing is strange indeed. I talk with strangers for hours on end; strangers which I’ve never seen and never met. I write about things which I do not understand; things which are too complicated to be understood fully. I build things without having an exact blueprint; some might be useful, others won’t be. It doesn’t matter, I enjoy it anyway.

Martin Luther King Jr. was right. It cannot be completely explained by those symbols called words. So I won’t even try. But I guess I will keep doing what I’m doing. Walking the path ahead, guided by joy.

Who is the happiest of men? He who values the merits of others, And in their pleasure takes joy, even as though it were his own.

Johann Wolfgang von Göthe

The Rise of the Sovereign Individual

Thu, 22 Aug 2019 00:00:00 +0000

Not too long ago, the internet was a fringe phenomenon. Very few people saw the benefits of a global communications network. Even fewer people had the vision and the foresight to see what it might enable. Today, most people take the internet for granted. It is simply expected to be there, like running water in your home.

Even before the internet became ubiquitous, technologists and visionaries realized the potential of this transformative technology. They realized that an undiscriminating network combined with the magical power of public-key cryptography tips the power-balance in the individual’s favor.

Eavesdropping-resistant communication which can’t be stopped is poison to authoritarian regimes, which, after all, are in the business of suppressing and controlling the flow of information. If people are still able to communicate and assemble, they can rise up and speak truth to power. We saw the liberating potential of communications technology during the Arab Spring, and we continue to see individuals rise up and fight authoritarian rule today.

What the cypherpunks understood 30 years ago is starting to play out right before our eyes: the tools of our information age have the potential to empower individuals like never before.

The Freedom to Transact

As I am writing these lines, hundreds of thousands of people are marching in the streets of Hong Kong, protesting against an extradition bill proposed by the government. As always, protests like these shine a light on the current power balance between individuals and the powers that be.

Unfortunately, the current system of surveillance, automated facial recognition, and cashless transfers enables not only a single point of failure, but also a single point of control in times of unrest. If the government doesn’t like your opinion or the fact that you were part of a (peaceful) protest, a simple truth becomes apparent: your freedom of assembly was an illusion, as was your freedom to transact freely.

In a free society, these freedoms should be guaranteed. How? Well, as we have seen in the past, information technology and strong cryptography — if used carefully — guarantee the right to speak freely. After all, no amount of violence will ever solve a math problem. In the same vein, an information technology exists today which guarantees the right to transact freely: Bitcoin.

It is easy to forget that “permissionless” and “censorship-resistant” are more than mere buzzwords. Under difficult circumstances, these words become a matter of life and death. The Hong Kong protests make evident once again what privacy advocates have been preaching for years, even decades: if censorship and surveillance are built into the system, it will be used and abused by those who are in charge. And if you don’t have the option to detach from your identity, free speech, free thought, and free action are impossible.

What is true for WeChat, Facebook, and Google, is also true for our current payment rails and the financial institutions of this world. No matter how noble the motivation of building central controls into communication or financial systems — power corrupts, and absolute power corrupts absolutely, as the saying goes.

Decentralized and private payments are a necessary innovation for a digital future where we retain our civil liberties and personal freedoms.”

Alex Gladstein

Strong cryptography allows us to reclaim our right to private conversations in the digital age, thanks to end-to-end encryption. The same cryptography allows us to reclaim our right to transact freely in a digital world, thanks to digital signatures, cryptographic hashes, and the global machine of truth and freedom which is Bitcoin.

The Freedom to Remain Private

In today’s digital world — as Hong Kong protesters know — finding out who went to which protest is as easy as retrieving data from a database. Whether it is from people’s bank accounts, WeChat, Alipay, or other virtual profiles, the convenience of the status quo inevitably leads to a system of total surveillance, and thus total control.

The solution to this conundrum is enabling privacy by default, which has been the default setting for thousands of years. Neither the internet nor Bitcoin is perfect in these regards, which is why constant vigilance and the development of privacy-enhancing technology are a necessity.

In the last couple of years, efforts to encrypt all internet traffic by default have been made. In the next couple of years, we hope to see continued efforts being made to make every bitcoin transaction even more private than they are now (which is one of the reasons why Bull Bitcoin uses Wasabi’s CoinJoin by default).

As is evidenced by the long lines at Hong Kong’s train ticketing machines, surveillance renders all other freedoms useless.

Source: Mary Hui

The current situation in Hong Kong paints a vivid picture of the disastrous side-effects of a cashless society. Without a way to transact privately and anonymously, people are enslaved to the masters of finance. And no amount of going digitally dark will allow you to avoid this slavery.

Arguably, things are bound to go from bad to worse. The financial elite which controls the most important good of our society — money itself — is playing god with our shared macroeconomic reality. In the last couple of decades, a concerted effort was made to attack another financial freedom: the freedom to save.

The Freedom to Save

Even without people marching in the streets, it is apparent to most that these are chaotic times. Currencies are not holding their value. A recession is looming. The most powerful men in the world are openly fighting currency wars and are bragging about it on twitter. All while the endless printing of money continues and politicians/bankers are spewing propaganda to normalize negative interest rates.

People talk about Quantitative Easing (QE) and Negative Interest Rate Policies (NIRPs) as if they were anything other than pure insanity. The first is simply printing massive amounts of money, the second is paying borrowers and stealing from savers.

Gone are the days where you would get interest from your money in the bank. In the world of NIRPs, you have to pay the bank to hold your money. In the same vein, gone are the days where you have to pay back your loan plus a little extra to reimburse your lender for taking on the risk. In the world of NIRPs, you are getting paid to take out a loan. Need some money? No worries! We are giving you the money and are paying you a little extra, for enjoying the privilege of giving you a loan!

As should be apparent for every child which is offered the choice between two marshmallows today, or one marshmallow tomorrow: the current financial world is defying common sense. I repeat: pure insanity.

More and more people realize that this insanity has to stop and decide to exit a system in which a global negative-yielding debt of $15 trillion is the new normal. The broken financial system, with its negative interest rates and “modern” monetary policies, are, in part, responsible for the rise of sovereign individuals all over the world.

Source: Rachel Cheung

People begin to realize the stupidity of this game. Putting pressure on this broken system by making a run on banks is one form of peaceful protest. Storing your value in an asset which can not be inflated, can not be confiscated, and can not be subject to the whim of politicians and bankers is another one.

Sats are my safe haven.”

Matt Odell

Bitcoin is quickly becoming a safe haven asset, especially for people who don’t have easy access to more “stable” currencies than their own. On a long enough time scale, bitcoin offers stability in a world of global instability. It guarantees the right to save: nobody will be able to take away your sats — you must give them away willingly.

Building towards a Sovereign Future

People are fed up with the tyranny of the banks, the tyranny of the state, the tyranny of Facebook, WeChat, Sina Weibo, and everything else which is “too big to fail.”

It is our collective responsibility to build a better future. A future where the freedom to transact, the freedom to remain private, and the freedom to save your wealth over time are guaranteed. In the words of the United Nations: the same rights and freedoms people have offline must also be protected online.

We want to help build a world which enables sovereign individuals to strive. A world where every individual — and every company, for that matter — can use freedom-enabling technologies, as they see fit, without asking anyone for permission. This is one of the reasons why we have released cyphernode, a suite of software and utilities to operate enterprise-grade Bitcoin services, as free software.

Cyphernode - free as in freedom.

While it is debatable whether Bitcoin can literally solve every problem of the world, it is undoubtedly a big piece of the puzzle. Technologies which empower the individual are more important than ever before. Technologies which enable you to remain private, speak and transact freely, or tip the balance of power towards the individual in another way will be invaluable for the world we are heading towards.

China is giving us a taste of what living in a dystopian surveillance state is like: you cross the street at the wrong place or the wrong time, and thanks to facial recognition, a fine is automatically deducted from your bank account while an algorithm adjusts your social credit score downwards. You pay for a bus ticket to take part in a peaceful protest, and you are at risk of being erased from the central registry, effectively erasing your ability to live a normal life as a citizen. It might happen today, it might happen tomorrow, or at any point in the future. The surveillance state does not forget.

The tools to guarantee freedom for all exist today, they are just not evenly distributed, not well understood, and not widely deployed. However, with every passing day, more and more people are realizing what kind of power is in their hands.

We encourage you to stay strong. We encourage you to keep on building. We encourage you to not give in to tyranny. We, and many people like us, will do our best to build towards a better future. Stay safe out there, and don’t forget to buy bitcoin.

This article first appeared on Bull Bitcoin’s Medium publication.

Audio Versions

Crypto Quik Read 292 by Guy Swann
The FOMO Show, Episode 52 - starting at 44:12

Proof of Life

Wed, 07 Aug 2019 00:00:00 +0000

The definition of life has been a challenge for scientists and philosophers alike. While many definitions have been put forward, what precisely differentiates the living from the non-living remains elusive. Are viruses alive? DNA molecules? Computer viruses? Biologically produced minerals?

Ralph Merkle, inventor of cryptographic hashing and namesake of the Merkle tree, made the argument that Bitcoin is the first example of a new form of life. In this article series, I intend to take this claim seriously, explore it further, and see what can be gleaned from viewing Bitcoin as a living organism.

The first part will establish that Bitcoin is indeed a living organism. The second part will take a closer look at Bitcoin’s various habitats, and how changes in these habitats might affect the organism. In the third part we will dissect the Bitcoin organism, trying to understand some of its parts in more detail. Finally, we will perform the thought experiment of trying to kill Bitcoin, to illustrate the remarkable resilience of this strange, decentralized organism.

What is Life?

The question of whether something is alive or not obviously hinges on one’s definition of life. Life is endlessly complex, so it is no surprise that answering the question “What is Life?” leads to a multitude of answers. New-age speculations aside, it seems that life is a process, not a substance.

We can try to describe this process by looking at things which are alive, and looking at what they do: they tend to grow, reproduce, and respond. They inherit traits, are made up of smaller units (cells), and use energy to maintain their internal structure in the face of entropy.

Based on Chris Packard's Characteristics of Life, cc-by-sa 4.0

From a physics perspective, living things are thermodynamic systems: they utilize the energy-differences in their surroundings to maintain a specific molecular organization and create copies of themselves. Thermodynamically speaking, living systems are able to decrease their internal entropy at the expense of “free” energy taken in from the environment. In short, living things create order out of chaos.

Bitcoin is doing exactly that: it takes energy from the environment and puts things in order, i.e. it decreases its internal entropy. It does so by appending blocks to a well-ordered structure. Some call this structure the blockchain, others call it a distributed ledger. I will refrain from using either name, since the name of this particular structure isn’t important, and doesn’t help to convey a deeper truth: that this structure is just one part of a large and complex system, just like the backbone in vertebrates. It is important, no doubt. But distributed or not, a ledger on its own is as useful and as alive as a bag of bones.

To understand why Bitcoin behaves animatedly we will have to look beyond the buzzwords and ask ourselves what Bitcoin actually is, what it is made of, and what its boundaries are.

What is Bitcoin?

Compared to biological life, Bitcoin is quite simple. Nevertheless, finding a succinct answer to “What is Bitcoin?” is not.

Depending on your background it might be a computer network, a financial revolution, a way to protect your wealth, a payment system, a global settlement layer, an alternative to central banking, sound money, a parallel economy, an exercise in free speech, a bubble, a pyramid scheme, a messaging system, a communications protocol, an inefficient database, internet money, or all of the above. In short, Bitcoin is different things to different people.

Whatever Bitcoin might be, it undoubtedly is a force to be reckoned with. It has a life of its own, and thus arguably, it is best described as a living thing.

Many people seem to have come to this conclusion independently. Bitcoin is described as an army of leaf-cutter ants in Andreas M. Antonopoulos’ Mastering Bitcoin — a biological system which is working in concert without a central coordinator. The honey badger, an animal which is commonly used to refer to Bitcoin (since it doesn’t care and isn’t afraid of anything) is on the cover of Jimmy Song’s Programming Bitcoin. Dan Held compared the invention of Bitcoin to planting a tree, examining the species (code), season (timing), soil (distribution), and gardening (community) that were essential to its success. Brandon Quittem postulates that Bitcoin is most similar to mycelium, the underground network which powers the fungi kingdom, and can thus be best understood as a decentralized organism.

The snake of regulation and central banking is biting you while you are eating it alive? Honey badger don’t care! And just like an army of ants doesn’t care if half of the workers are washed away by a flood, the Bitcoin network doesn’t care if half of the nodes are offline tomorrow.

Honey badger don’t care, honey badger don’t give a fuck.”

Randall

Memes like these, especially if they survive and continue to be popular over a long period of time, tend to be right, conceptually. What people seem to be saying when they refer to Bitcoin as the honey badger is that, in essence, Bitcoin behaves like an animal which can’t be controlled, can’t be tamed, and doesn’t care too much about externalities.

Which particular organism Bitcoin resembles most closely will be left as an exercise for the reader. The above examples should merely illustrate that multiple authors made the intellectual leap of classifying Bitcoin as a living organism - a leap which I believe to be fascinating, useful, and ultimately, correct.

Bitcoin is a living organism, and we should try to understand it as such if we want to live in harmony with it.

The Bitcoin Organism

As mentioned above, Ralph Merkle was the first to point out that Bitcoin can be seen as a living entity. He remarked that Bitcoin has spawned an incredible amount of excitement in the technical community, and tried to translate this excitement into something which can be understood by everybody: a new form of life.

Briefly, and non-technically, Bitcoin is the first example of a new form of life. It lives and breathes on the internet. It lives because it can pay people to keep it alive. It lives because it performs a useful service that people will pay it to perform. It lives because anyone, anywhere, can run a copy of its code. It lives because all the running copies are constantly talking to each other. It lives because if any one copy is corrupted it is discarded, quickly and without any fuss or muss. It lives because it is radically transparent: anyone can see its code and see exactly what it does.”

Ralph Merkle

While Bitcoin is indeed radically transparent, it is not perfectly obvious where Bitcoin begins and where it ends. Like all living things, Bitcoin isn’t just a uniform blob of matter. It is a dynamic, living thing, consisting of many different parts, all of which communicate with and influence each other, as well as other living things and the environment as a whole.

The Bitcoin organism is made up of many interlocking parts which work together to ensure the survival of the whole. As with biological organisms, as soon as one crucial part is missing, the whole organism is bound to die.

Bitcoin, however, is a strange beast. It lives across domains, with one foot in the purely informational realm (ideas and code) and one foot in the physical realm (people and nodes).

The Bitcoin organism manifests itself through the interplay of ideas, code, people, and nodes. All four of these conceptual pieces react to and influence each other in a value-generating feedback loop which keeps Bitcoin alive.

Whether people are part of the Bitcoin organism, or merely living in symbiosis with it, depends on your point of view. For now, let’s take an all-encompassing view of the Bitcoin organism, including people as one part of the whole. After all, just like we can’t live without a multitude of bacteria, fungi, viruses and other creepy-crawlies which make up the human microbiome, Bitcoin can’t live without us: the tiny beings in meatspace which keep it alive.

In any case, nodes and their operators are tangible things which are manifest in the physical world. Like the cells in your body, all physical components of the Bitcoin organism can and will be replaced over time. Node operators come and go, node and mining hardware is replaced periodically, and even whole mining farms go offline and are replaced by more cost-efficient facilities.

Ideas and code are more ethereal. They can’t be grasped or pointed to in the same fashion. However, Bitcoin has an essence, the soul of the organism, if you like. Note that this essence could, in theory, breathe life into a new host if the current incarnation of the organism dies. The ghost of Bitcoin is independent of its physical body, to borrow a metaphor from Shirow’s Ghost in the Shell.

As long as something is compatible with this essence, it will be treated as part of the whole. If something is incompatible, however, it will be rejected — just like biological organisms reject foreign objects inside their bodies.

Part of this essence is made explicit by Bitcoin’s consensus rules, other parts are repeated as mantras: “not your keys, not your bitcoin” and “run your own node” are gentle reminders of lessons learned, as well as shortcuts to a deeper understanding of what Bitcoin is and should be.

With a basic idea of the constituents and the extent of the Bitcoin organism in mind, let’s return to the descriptive definition of life above and see how Bitcoin maps onto each trait.

Growth: Bitcoin grows in multiple ways. The network grows, the value of each bitcoin grows, the market grows, its user base grows, and the ecosystem as a whole grows as well.
Reproduction: Paradoxically, Bitcoin uses replication to create absolute scarcity. It reproduces itself in multiple ways, and on multiple levels: the source code is replicated across repositories, the software is copying itself upon installation, the ledger reproduces itself on every node, blocks propagate across the network by replication, and even UTXOs can be understood as reproductive entities, dividing and merging during the transaction process. Mutations exist on every level as well: invalid transactions, invalid blocks, hundreds of forks, and thousands of imperfect copies have been spawned by Bitcoin in the last couple of years.
Heredity: Bitcoin inherits several traits from its predecessors: public-key cryptography, digital signatures, peer-to-peer networking, digital timestamping, and unforgeable costliness — just to name a few. Further, Bitcoin’s open nature enables both vertical and horizontal gene transfer: some traits develop by gradual mutations of previous versions, others find their way into the codebase by incorporating ideas from other projects.
Homeostasis: Above all else, Bitcoin’s consensus rules are responsible for its stable inner conditions. If blocks do not adhere to the current consensus rules, they will be rejected mercilessly and quickly. The Bitcoin network will rid itself of these blocks just like we shed the dead cells of our skin.
Metabolism: Mining rigs around the world keep the organism alive, erecting virtually impenetrable walls in the process. Energy is transformed into digital amber, ensuring that the shield around past transactions is growing and Bitcoin’s heart keeps beating.
Cellular: Multiple parts of Bitcoin are cellular: the Bitcoin network consists of nodes, each of which a self-sustaining, functional entity. The ledger itself is cellular since blocks (and transactions) are basically cells in a large, append-only spreadsheet.
Responsive: Bitcoin is a highly responsive organism. It responds to changes in price, political changes, economic changes, environmental changes (e.g. if parts of the internet are cut off), technological changes (e.g. breakthroughs in chip manufacturing), and changes in our scientific understanding (e.g. breakthroughs in computer science, mathematics, or cryptography). It reacts on its own, without any person, company, or nation-state in charge.

As mentioned above, life is a process, not a substance. A delicate dance of innumerable parts, all signaling and communicating in an intricate way to self-sustain each organism, and the phenomenon which we call life as a whole.

Life is like fire, not water; it is a process, not a pure substance. […] The simplest, but not the only, proof of life is to find something that is alive.

Christopher McKay

In the words of astrobiologist Chris McKay, the simplest proof of life is to find something that is alive. I have found Bitcoin, and as far as I can tell, it is alive — for all the reasons outlined above.

Conclusion

Bitcoin checks all the boxes when it comes to the characteristics of living things: it grows, reproduces, inherits and passes on traits, uses energy to maintain a stable inner structure, is cellular in nature, and responds to the various environments it lives in.

In the next part of this series we will take a closer look at these environments, and how Bitcoin responds to changes in them. Bitcoin lives and breathes on the internet, as Ralph Merkle beautifully said. But arguably, the internet isn’t the only environment it is living in.

For now, I hope to have convinced you that Bitcoin can be seen as a living organism — alien as it may be.

Acknowledgments

Thanks to Dan Held, Brandon Quittem, and Raph for their feedback on earlier drafts of this article.

The World is Waking Up to Bitcoin

Tue, 23 Jul 2019 00:00:00 +0000

Not too long ago, Bitcoin was a niche interest. Cryptographers, cypherpunks, and some libertarian-minded folks were the only ones interested in the idea of magic internet money.

Fast-forward to today, and the U.S. President, the Treasury Secretary, the Chairman of the Fed, members of Congress, and members of the House of Representatives spoke publicly about Bitcoin — all in the course of a couple of days.

We now live in a world where “there’s bitcoin, and then there’s shitcoin” is immortalized in the congressional record, the Fed recognizes Bitcoin as “an alternative to gold” and “a store of value,” and at least one news anchor is full-on Bitcoin woke.

As Bitcoin continues to creep into public consciousness, more and more people — politicians and news anchors included — have to ask themselves some hard questions around money, control, and the difference between Bitcoin and shitcoins. Government-issued or not.

The world is waking up to Bitcoin, and conversations which used to be confined to #BitcoinTwitter are now had in the wider public. What a glorious time to be alive.

Understanding Bitcoin in 3 Stages

Bitcoin is quite a complex beast, combining many disciplines in non-trivial ways. Understanding what it does, how it works, and what the implications are, takes a little while.

Many people dismiss Bitcoin at first. They might think it’s stupid, arguing it can never work. They might think Bitcoin is inefficient, convinced that some random shitcoin can solve the same problem more efficiently. They might think it’s a fad, magic internet money which will go away after a while.

After dismissing Bitcoin, angrily admitting that it is still a thing, you might want to try to outlaw it. Especially if you are in or close to the money printing business. The ban, of course, will prove to be ineffective. Bitcoin is a global phenomenon, and banning it in your jurisdiction will only hurt you, not Bitcoin.

Stage three is the realization that stopping Bitcoin is a herculean task, bordering on the impossible. Killing a beast without any heads is difficult enough. To make things even worse, this particular beast is living in cyberspace, not bound to a single jurisdiction, feeding on human greed, and getting stronger with every attack.

The last couple of weeks showcased all three stages, happening all at once in various public hearings and discussions:

“I am not a fan of Bitcoin”
“We have to outlaw Bitcoin”
“You can’t kill Bitcoin”

Let’s examine those stages one-by-one.

Stage 1: “I am not a fan of Bitcoin”

On July 12, 2019, the most powerful orange man in the world decided to tweet his opinion about the most powerful orange coin in the world to his 62 million followers.

What does this mean for Bitcoin? Apart from free publicity, not too much. The orange honey badger still fails to care about politics and thus the Bitcoin network will happily continue to produce blocks whether it has presidential approval or not.

Since there is no bad publicity for Bitcoin, the only thing that might happen is that a certain percentage of these 62 million followers — some of which undoubtedly never heard of Bitcoin before — will start to fall down the rabbit hole.

One person which seems to have caught a mild case of the orange fever is Joe Squawk, which brought us this insanely bullish segment as a reaction to the Trump tweet.

"You could sway him on cryptocurrencies?" "On Bitcoin."

As mentioned above, the U.S. president wasn’t the only one commenting on Bitcoin recently. The Chair of the Federal Reserve tried his best to tell everyone that Bitcoin has no adoption, except for the fact that people use it as a store of value, like gold.

Just in case you missed the important bit:

If a cryptocurrency system were to become prevalent throughout the globe, would that diminish or remove the need for a reserve currency in the traditional sense?” “Things like that are possible. But we really haven’t seen them. We haven’t seen widespread adoption. I mean, Bitcoin is a good example. Really almost no one uses Bitcoin for payments. They use it more as an alternative to gold, really. It’s a store of value. It’s a speculative store of value, like gold.”

Jerome H. Powell

Let me rephrase the above, to get to the essence of what was said.

Question: If hyperbitcoinization would occur, would that make the federal reserve obsolete?
Answer, by the chairman of the Fed: Yes.

Alright. Now that the danger Bitcoin poses to the powers that be is properly understood, we can move on to the next stage of understanding Bitcoin: trying to outlaw it.

Stage 2: “We have to outlaw Bitcoin”

A few weeks before the presidential tweet, a member of Congress urged to introduce a bill to outlaw all cryptocurrencies.

What would this mean for Bitcoin? Well, first of all, Bitcoin is bigger than U.S. law, and second of all, laws aren’t very effective if they can’t be enforced in a meaningful way.

However, after the introductory “we have to outlaw Bitcoin” speech, a magical thing happened. It seems that this particular congressman understands Bitcoin quite well since he made the case for Bitcoin better than any maximalist could.

Watch below as Representative Chad Shillman beautifully explains Bitcoin’s value proposition in less than one minute.

Once the value proposition is properly understood, the last stage is to wrap your head around Bitcoin’s decentralized nature.

Stage 3: “You can’t kill Bitcoin”

One of the side-effects of grasping Bitcoin is having the humbling and profound realization that it is virtually impossible to shut down. This beast is bloody hard to kill, and once you realize this, you have two options: (1) fight it and become a joke, (2) join it and become woke.

If you would’ve told me 6 months ago that a Bitcoin-woke news anchor would interview a Bitcoin-woke politician on CNBC, I would have laughed you out of the room. Yet, here we are, live on TV, with blue shirts and colorful ties and all.

The point made by Rep. Patrick McHenry is worth reiterating:

There is no capacity to kill Bitcoin. Even the Chinese with their firewall and their extreme intervention in their society could not kill Bitcoin. […] My point here is: You can’t kill Bitcoin.”

Rep. Patrick McHenry

As if this wasn’t bullish enough, the same politician goes on to re-iterate the unstoppable nature of Bitcoin in his opening statement to the U.S. House Committee on Financial Services.

Again, the opening statement made by Rep. Patrick McHenry is worth reiterating:

The reality is, whether Facebook is involved or not, change is here. Digital currencies exist. Blockchain technology is real. And Facebook’s entry in this new world is just confirmation, albeit at scale. The world that Satoshi Nakamoto — author of the Bitcoin whitepaper — envisioned, and others are building, is an unstoppable force. We should not attempt to deter this innovation. And governments can not stop this innovation. And those that have tried, have already failed.”

Rep. Patrick McHenry

Take a moment to let that sink in.

“Governments can not stop this innovation.”
“Bitcoin is an unstoppable force.”
“You can’t kill Bitcoin.”

Just three years ago, the above was only to be read in an obscure paper written by the cryptographer Ralph Merkle. He argued that Bitcoin is a new form of life, one that can’t be changed, can’t be argued with, can’t be tampered with, can’t be corrupted, can’t be interrupted, and can’t be stopped.

Three years later, and what was first articulated as a non-technical metaphor to help convey the fascinating nature of Bitcoin is now par for the course in the U.S. Congress and on TV.

The Future is Bullish

Bitcoin continues to win the hearts and minds of the people it touches. This includes the hearts and minds of politicians, news anchors, bankers, and others which are currently among the powerful and influential.

If you would have told me that it would be possible to be even more bullish than I was 6 months ago, I wouldn’t have believed you. Yet here we are. Bitcoiners in Congress, Bitcoiners on TV, and the president of the United States shitposting about Bitcoin. What a glorious time to be alive.

The world is waking up to Bitcoin, and I’m more bullish than I’ve ever been.

This article first appeared on Bull Bitcoin’s Medium publication.

Brevity

Tue, 09 Jul 2019 00:00:00 +0000

It is with words as with sunbeams. The more they are condensed, the deeper they burn.

Robert Southey

Ships

Sat, 08 Jun 2019 00:00:00 +0000

One part of the journey seems to be over. However, as is the case in all of life, there is no clear separation between parts. So I won’t try to create one. One journey comes to an end, but still, the journey continues. Where this journey will lead is anyone’s guess, but I feel both confident and optimistic. Even without a known destination, things are going in the right direction.

The last couple of weeks have been quite eventful. Meeting old friends, and saying farewell to new ones. Leaving one paradise to enter a different one. Encounters with tragedy, and encounters with hope. I am grateful for all of it.

Some ships have sailed. That’s how things are, and how things should be. You can’t board multiple ships at the same time, just like you can’t walk many paths at once. Every step taken is another step not taken, in a million different directions.

Again, where this ship will take us is anyone’s guess. But we are setting sail, enjoying the breeze, and learning how to fish. And it feels great.

Words

Tue, 21 May 2019 00:00:00 +0000

Words have to be one of the greatest inventions of mankind. Granted, it’s a stretch to say that the spoken word was invented. The written word, however, undoubtedly was.

What an astonishing thing a book is. It’s a flat object made from a tree with flexible parts on which are imprinted lots of funny dark squiggles. But one glance at it and you’re inside the mind of another person, maybe somebody dead for thousands of years. Across the millennia, an author is speaking clearly and silently inside your head, directly to you. Writing is perhaps the greatest of human inventions, binding together people who never knew each other, citizens of distant epochs. Books break the shackles of time. A book is proof that humans are capable of working magic.

Carl Sagan, Cosmos

Books are indeed proof that humans are capable of working magic. I wonder what Carl’s thoughts would be on the technology of today, some of which is truly indistinguishable from magic.

Performing magic, or in this case, properly expressing one’s thoughts in writing, is hard. Writing forces you to structure your thoughts. Structuring your thoughts - and by extension, yourself - can be a painful process.

Words do not express thoughts very well. They always become a little different immediately after they are expressed, a little distorted, a little foolish. And yet it also pleases me and seems right that what is of value and wisdom to one man seems nonsense to another.

Hermann Hesse, Siddhartha

Painful, because you actually don’t want to put in the work to clean up your thoughts, exactly because it is work. The option of not doing this work is a comfortable one. The option of ignoring any holes in your reasoning is too.

It is so easy to convince yourself that your reasoning is sound. That you have it all figured out. “The easiest person to fool is yourself,” to paraphrase Richard Feynman. Knowing that you can be fooled easily and that you can also easily fool yourself is not only helpful – it is the root of the scientific method.

I’ve had many conversations in the last couple of weeks, some of which related to questions of certainty and doubt. I love meeting people who are fully convinced of something. No matter what it is, I’m always intrigued. Don’t get me wrong, I have strong convictions as well, but I’m more than willing to entertain the question: “What if I’m wrong?”

The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.

Bertrand Russell, The Triumph of Stupidity

Many people do not entertain the idea that they could be wrong. I wouldn’t go as far as Bertrand Russel and call them stupid – because I don’t think they are. I was cocksure about things too, some years ago. What changed? I do not think that I got smarter. I just learned certain tricks, just like a magician learns magic tricks.

One of those tricks is very useful to check your level of conviction: ask yourself what it would take to change your mind. What would it take for you to admit that you are wrong? Sometimes, it is also a great way to check the depth of your understanding.

The more I write, the more blind-spots I keep finding in my understanding. The more I write, the less I am convinced that I have it all figured out. The more I write, the greater my respect for any successful writer. The more I write, however, the more I am convinced of the power of words and ideas.

No matter what anybody tells you, words and ideas can change the world.

Tom Schulman, Dead Poets Society

What would it take to convince me of the opposite? And with that, the magician vanishes…

Ladies

Sun, 12 May 2019 00:00:00 +0000

What a strange thing is man! And what a stranger is woman! What a whirlwind is her head, and what a whirlpool full of depth and danger is all the rest about her.

Lord Byron

Women are more powerful than they think. A mother’s warmth is the essence of motivation. If we could liquefy the encouragement, care and compassion we deliver to our children it would surely fill an expanse greater than the Pacific

Louise Burfitt-Dons

Next to God, we are indebted to women, first for life itself, and then for making it worth having.

Christian Nestell Bovee

All that I am, or hope to be, I owe to my angel mother.

Abraham Lincoln

Bitcoin's Gravity

Wed, 01 May 2019 00:00:00 +0000

Bitcoin is different things to different people. Whatever it might be to you, it is undoubtedly an opinionated and polarizing phenomenon. There are certain ideas embedded in the essence of Bitcoin, and you might be intrigued by some or all of them.

The invention of Bitcoin, and its underlying blockchain, which is so widely misunderstood, spawned many projects, networks, and communities. Some of these networks are in direct competition, which has resulted in endless conflicts and lots of debate. The root of these conflicts is ideological in nature: disagreement about how the world is and how it should be — a disagreement about ideas.

The following is an attempt to explain some of the reasons behind this polarization, explore the underlying dynamics in more detail, and illustrate why an increasing number of people seem to be gravitating towards Bitcoin.

There are some oddities in the perspective with which we see the world. The fact that we live at the bottom of a deep gravity well, on the surface of a gas covered planet going around a nuclear fireball 90 million miles away and think this to be normal is obviously some indication of how skewed our perspective tends to be, but we have done various things over intellectual history to slowly correct some of our misapprehensions.

Douglas Adams

Agreeing on a Set of Ideas

The goal of the Bitcoin network is to reach consensus, a general agreement on the state of the system. Bitcoin’s breakthrough innovation was utilizing unforgeable costliness to reach global consensus without relying on a central authority.

Bitcoin can be understood as a game that anyone can join. Like all games, it can only be played if it has rules, certain ideas which are internally consistent. Otherwise, it wouldn’t be a game; it would be chaos.

Before any game can be played, the rules have to be established; before the game can be altered, the rules have to be made manifest. […] All those who know the rules, and accept them, can play the game — without fighting over the rules of the game. This makes for peace, stability, and potential prosperity — a good game. The good, however, is the enemy of the better; a more compelling game might always exist.

Maps of Meaning

Bitcoin’s consensus rules are just that: a set of ideas, codified into validation rules, acted out by nodes on the network. Changing this core set of ideas is akin to changing what Bitcoin is, and the decentralized nature of the network makes changing them extremely difficult. There is no central authority to dictate changes, making unanimous adoption of a new set of ideas virtually impossible. Anyone who changes the rules, even if he thinks such a change is for the better, will start to play a different game, with only those who join him.

As Bitcoin’s creator famously said: the nature of Bitcoin is such that once the first version was released, the core design was set in stone for the rest of its lifetime.

Undoubtedly, Satoshi had certain ideas in mind when he created Bitcoin. Many of these ideas are articulated in his writing, and even in the genesis block. Most importantly, however, his core ideas are codified in Bitcoin’s consensus rules:

fixed supply
no central point of failure
no possibility of confiscation or censorship
everything can be validated by everyone at all times

This set of ideas is embedded in the rules of the network, and you have to adopt them to participate. In essence, a network like Bitcoin encodes a social contract in its software: ideas which are shared by everyone on the network.

Spreading ideas

All great things start small, and Bitcoin was no exception. In the beginning, it was one node, one piece of software, one person, one set of ideas. On 31 October 2008, the Bitcoin whitepaper was published. Two months later, on 3 January 2009, the genesis block was mined.

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

Bitcoin’s Genesis Block

It took only two days until a second person was intrigued enough to join the network. Hal Finney ran the software, connected to Satoshi’s node, and the Bitcoin network was born. Soon, other people picked up on the idea, ran the software, and set up their nodes to join the network. The rest, as they say, is history.

The Bitcoin network is a complex piece of machinery. The constituents of the network — part technology, part biology — make it inherently difficult to describe and understand. While the following doesn’t claim to be a complete description of the system by any means, I think it’s helpful to focus on some constituents in more detail. In particular, I want to focus on the following four: ideas, people, code, and nodes.

Bitcoin's ingredients: two parts software, two parts hardware.

On the physical layer, the network is made up of interconnecting nodes. Bitcoin’s consensus rules are embodied in its software, i.e. the code which is running on its nodes. Ultimately, people are choosing which software to run, a decision which is shaped by the set of ideas they hold.

The possibility of running self-sovereign nodes is part of the reason why Bitcoin’s consensus rules are so hard to change. As mentioned above, there is no central authority, no entity to trust. Changes have to be adopted voluntarily by everyone. People are free to run any version of the software, be it out of conviction, laziness, or contempt.

Bitcoin is a system “based on cryptographic proof instead of trust,” to quote the whitepaper. The implication is that you are the authority and you have to verify everything for yourself from scratch. Out of this, consensus emerges.

Freedom brings men rudely and directly face to face with their own personal responsibility for their own free actions.

Frank Meyer, In Defense of Freedom

As soon as consensus is reached on the network, value comes into play. That bitcoins — or any monies, for that matter — have value, is in itself an idea that people need to be convinced of.

For Bitcoin, this process took almost 500 days. When the network was in its infancy, bitcoins weren’t worth anything. They were mined and sent back and forth between curious cypherpunks. However, the moment Laszlo exchanged 10,000 BTC for two pizzas, Bitcoin went from zero to one. In an instant, the network became valuable in a tangible way.

Ever since this moment, the following idea-value feedback loop is at play:

Bitcoin’s set of ideas — its value proposition — is attracting people.
Those people freely choose which code to run.
The selected code runs on individual nodes, dictating their behavior.
Nodes join the network, connecting to peers who share their ideas.
The network reaches consensus, enabling agreement on who owns what.
The value, in turn, is based on the set of ideas enforced by consensus rules: the embodiment of its value proposition.

Idea-value feedback loop.

This idea-value feedback loop, the re-enforcement of ideas through value creation, is the mechanism behind Bitcoin’s gravity. Everything in this cycle influences everything else — whether it is software, hardware, or wetware. This loop is what ultimately captures people, and since Bitcoin’s core set of ideas is virtually fixed, it has some surprising effects on the sets of ideas held by people.

Bitcoin’s Gravity Well

As we have seen above, Bitcoin is an opinionated piece of software, creating an opinionated network. The result of an opinionated network is that it attracts opinionated people.

Arguably, most early adopters of Bitcoin shared its core set of ideas. As Dan Held points out in Planting Bitcoin, Satoshi carefully chose the initial group of people: cryptographers and cypherpunks, who understood the technical components Bitcoin is made of.

There are many paths which might bring you close to Bitcoin’s gravitational pull: you might have an interest in cryptography, information security, or financial technologies. You may hold certain political or economic beliefs. You might be a gold bug, free speech advocate, or a speculator. You may need to use Bitcoin out of necessity. Whatever the reasons for your initial contact with Bitcoin, there is a certain probability that you are pulled in. Satoshi alluded to this multi-dimensional attractiveness in one of his emails to the cryptography mailing list.

It’s very attractive to the libertarian viewpoint if we can explain it properly. I’m better with code than with words though.

Satoshi Nakamoto

One way to illustrate this is by visualizing a landscape of ideas. Since the number of all possible ideas is basically infinite, we will have to focus on a small subset. And since we are talking about Bitcoin, we will focus on the small universe of ideas spawned by asking the question of what Bitcoin is.

What is Bitcoin?

Ask three strangers what Bitcoin is, and you will probably get three very different answers. Any answer is necessarily shaped by past experience, political and economic beliefs, and an individual understanding of the world. Your personal set of ideas, your world view, defines where you are on the landscape of ideas.

The landscape has sets of ideas which clump together: narratives, which help to explain what Bitcoin is. One person might think of Bitcoin primarily as digital gold, focusing on the store of value aspect of Bitcoin. Another person might think of Bitcoin as a payment system, focusing on the medium of exchange aspect of Bitcoin. Yet another person might think of Bitcoin as a way to automate more complex social constructs, focusing on automation of contracts and similar ideas.

Nobody can know everything. The complexity of society is irreducible. We cling to mental models that satisfy our thirst for understanding a given phenomenon, and stick to groups who identify with similar narratives.

Dan Held

These narratives, these sets of ideas, describe both what Bitcoin actually is — at least in part — and what people think it is. These narratives will necessarily evolve over time as our understanding of the system and the system itself evolves. Neither ideas, nor people, nor Bitcoin, nor the world at large are static things. Our visions of Bitcoin have changed, and will continue to do so in the future.

Whatever Bitcoin is, it acts as a gravity well in this universe of ideas. If your set of ideas overlaps with those embodied by Bitcoin, you are close to its gravity well and captured easily. If your set of ideas is opposed to Bitcoin’s, you are far away from its gravitational pull and remain unattracted.

What is Bitcoin?

Consequently, Bitcoin is attracting opinionated people who share certain ideas and ideals. “Birds of a feather flock together,” as the saying goes. In this case, many nerd-birds and cypherpunks flocked around Bitcoin early. Not particularly surprising.

What is surprising, however, is the side-effect of an opinionated network: it influences people. Since the set of ideas embodied by Bitcoin is fixed, it is the set of ideas held by people which has to align — not vice-versa. The last ten years have shown that Bitcoin is very effective in changing minds. So far, no single mind was particularly effective in changing it.

So the universe is not quite as you thought it was. You’d better rearrange your beliefs, then. Because you certainly can’t rearrange the universe.

Isaac Asimov

To repeat an old TFTC trope: Bitcoin will change us more than we will change it, as I have learned myself.

Attraction and Repulsion

But what if your set of ideas does not overlap with Bitcoin’s? What if you wish to change Bitcoin’s set of ideas, not convinced of the futility of this endeavor? What if you are downright repulsed by some of its ideas?

The miracle of physics that I’m talking about here is something that was actually known since the time of Einstein’s general relativity; that gravity is not always attractive. Gravity can act repulsively.

Alan Guth

If you are truly repulsed by Bitcoin’s ideas, you might end up drifting away into space, joining the interstellar void where nocoiners float around.

If you want to change Bitcoin’s ideas in a fundamental way, you might end up creating another gravity well. This is easily possible because of Bitcoin’s openness. Its open source code, permissionless network structure, and lack of formal organization of any kind allows anyone to copy, modify, and run the code without asking for permission.

As outlined above, changing the core rules of Bitcoin results in a new game — different from the game everyone else is playing. To not play alone, you would have to convince other people to play with you. If you want to have the same number of people to play with, you will have to convince everyone on the network that your set of ideas is better than the one held by everyone else. And since this is mostly a financial game, strong network effects are very beneficial; it is in your best interest to convince everyone.

Failing to do so will create a competing system; either by creating a new network or by splitting off from the existing Bitcoin network. Since all new projects are inspired by Bitcoin, the set of ideas necessarily overlaps; sometimes almost exactly.

Tracking narratives is a good way to help people understand that there are, in fact, a menu of beliefs competing for their affiliation; […] Trying to identify where one narrative ends and another begins is a challenging task, as ideas tend to have permeable borders.

Nathaniel Whittemore

Since creating new gravity wells is (a) possible and (b) relatively easy to do (copy Bitcoin’s code, change a few parameters, launch the new network with a couple of friends) there was an explosion of alternative coins in the last few years. While most of these altcoins are outright scams, some try to find a niche, attracting people who share its new or modified set of ideas.

Different ideas are captured by different gravity wells.

Being sucked into one of these gravity wells — and thus into an idea-value feedback loop — is the reason for much of the toxicity we see in Bitcoin and elsewhere. The direct link between holding beliefs (ideas) and holding assets (value) is a multiplying factor which can result in ever deeper entrenchment.

Everyone knows nowadays that people “have complexes.” What is not so well known, though far more important theoretically, is that complexes can have us.

Carl Jung

One could argue, as Carl Jung did in relationship to complexes, that blockchains have people. At the root of every gravity well is a set of ideas and a group of people which are had by them.

Once captured, a difference in technicalities can easily become a difference in ideologies — and vice versa. Giving up on ideas is difficult in any case, but if your net worth is intractably linked these ideas it becomes ever more difficult.

Orbits and Collisions

The formation of any gravity well isn’t exactly a smooth ride. Just like stellar and planetary formation is violent at times — suns swallowing planets, planets bumping into each other, and moons being smashed to pieces — the formation of Bitcoin’s gravity well had some violent events too.

I plan to explore some of these events in the future, but for now, let’s just acknowledge that there are other projects orbiting Bitcoin and that there have been collisions in the past.

An artist's impression of Bitcoin and its satellites. Source: KQED Science

Whether all other projects will be swallowed by Bitcoin or die on their own, or whether some will find stable orbits, is yet to be seen. What can be observed today, however, is that most networks are competitive. To quote Eric Hoffer: “the gain of one in adherents is the loss of all the others.”

What can also be observed, since it has happened multiple times over the last couple of years, is that projects which fail to deliver on their value proposition are quickly losing most of their adherents and also their value — the former due to disillusion, the latter due to market forces. Value, and speculation on future value, is an integral part of the idea-value feedback loop. If ideas don’t materialize or fail, real (and speculative) value is lost, which is effectively killing those ideas and the networks which embody them.

However, as long as people hold different sets of ideas, and as long as a project in Bitcoin’s orbit embodies this set of ideas, people will flock to it. Whether those ideas have merit will be decided by time, the open market, and ultimately, reality. Horrible ideas don’t work at all, bad ideas not for long, and solutions which aren’t substantially better than the status quo won’t thrive in a free market.

The best ideas, however, might be discovered by the biggest networks and will be assimilated, if assimilation is possible. If Bitcoin can eat it, it will eat it.

Feeding on Ideas

As mentioned above, Bitcoin’s core set of ideas is fixed from day one. However, this doesn’t imply that Bitcoin can’t be improved. It can and should be improved, but it has to be improved in ways that don’t destroy the essence of Bitcoin. Such improvements are happening all the time, which is why we can send payments to script hashes, have segregated witness, and can pay small amounts quickly and cheaply on the lightning network.

The technicalities of improving Bitcoin — and the important difference between a soft and a hard fork — are well worth exploring, but are beyond the scope of this article. Without going into more details in regards to the nature of these improvements, Bitcoin undoubtedly is improving, and thus its feature set is changing and expanding.

In terms of gravitational pull, this means that Bitcoin is gaining mass. The set of ideas which describes Bitcoin is expanding along with its feature set, potentially capturing more people and swallowing competing projects and ideas in the process.

The idea of cheap payments, for example, has re-emerged thanks to payment channels on the lightning network. While still in its early stages, other projects built on this idea will lose their merit if the lightning network is successful on a large scale.

Privacy is another idea which is at the root of several competing projects. If future privacy enhancements in Bitcoin prove to be successful (Schnorr signatures, lightning, whirlpool, wallets supporting CoinJoins), these projects might be swallowed by Bitcoin as well.

And the earth opened her mouth, and swallowed them up, and their houses, and all the men that appertained unto Korah, and all their goods. They, and all that appertained to them, went down alive into the pit, and the earth closed upon them: and they perished from among the congregation.

Book of Numbers

I’m not saying that all other projects will perish, necessarily. But networks thrive because of network effects: the winner takes most, if not all.

The Value of Conviction

Whenever people are debating ideas, tribalism is the norm, not the exception. Whether it is politics, sports, iPhone vs Android, or pineapple on pizza, people identify with the camp that is closest to their ideas and ideals.

While the validity of ideas is sometimes hard to measure, either because their consequences are very indirect (politics) or subjective and not truly consequential in the grand scheme of things (pineapple on pizza), networks like Bitcoin come with a direct measurement: value.

While this value can be distorted by both manipulation and speculation, it is a reliable and (almost) direct indicator of both conviction and validity of ideas. If more people are convinced by a network’s set of ideas, more people will hold its native token as an asset. And the more those ideas align with reality, the more real-world value is generated by the network, convincing more people and deepening the convictions of those already convinced.

Bitcoin has the largest gravity for a reason: it works since day one, solves real problems for real people, generating real value. It works because its set of ideas aligns most closely with reality. It is valuable because people believe in its value proposition, and with good reason: Bitcoin is the largest, most secure, most robust network for permissionless and digital value transfer to date. And it is growing.

Whether you are already convinced by Bitcoin’s ideas or are diametrically opposed to them, Bitcoin will continue to not care. Its gravitational pull will continue to increase, swallowing ideas, people, code, and nodes in the process.

Conclusion

We have seen that Bitcoin embodies a certain set of ideas in its consensus rules and overall architecture. Changing Bitcoin’s core set of ideas is virtually impossible, which is why its core design is “set in stone” since day one.

The idea-value feedback loop is what creates Bitcoin’s gravity. People coming close to this feedback loop have a certain probability of being captured, which forces them to align their own set of ideas with Bitcoin’s or “fork off.”

Understanding that any unchanging system will change its participants is helpful in understanding both attraction to and repulsion by Bitcoin. Since changing the core set of ideas is not an option, new projects embodying new sets of ideas are launched, creating new gravity wells in the process.

A different idea-value feedback loop is the basis for each gravity well. Tribalism and loss-aversion help to explain some of the toxicity between competing projects and communities, since falling into any feedback loop will taint the world view of anyone captured by it.

For one can fall victim to possession if one does not understand betimes why one is possessed. One should ask oneself for once: Why has this idea taken possession of me? What does that mean in regard to myself?”

Carl Jung

Both the world and Bitcoin are dynamic things, making any set of ideas we currently hold insufficient for a permanent, complete view of either. Bitcoin can and does change, even if its essence is virtually unchangeable. No matter our individual beliefs, we must not get too attached to any narrative, or to any set of ideas.

Bitcoin’s dominance is no accident. Its set of ideas managed to convince the largest group of people, generating the most value in turn. However, exploring other ideas can be a good and healthy thing, if pursued genuinely. Time and the free market will decide which ideas align with reality. Bad ideas will vanish, and good ideas will be absorbed.

In a world where people hold a combination of ideas and valuable assets, a feedback loop which links and reinforces both is a powerful force of attraction. Whether you just started to feel Bitcoin’s gentle pull or you’ve been a hodlonaut in close orbit, Bitcoin’s gravity will continue to increase. I am convinced of that idea, and I hope to have planted a seed of conviction in you as well.

Acknowledgments

Thanks to Hasu, whose incredible feedback helped to shape large parts of this article. His writing on Unpacking Bitcoin’s Social Contract was my inspiration for writing about Bitcoin’s gravity.
Thanks to Nathaniel Whittemore for his writings on narratives and feedback on earlier drafts of this article.
Thanks to Ben Prentice for proofreading the final draft.
Graphics based on the fxemoji set cc-by Sabrina Smelko
Dedicated to the bravest space cat of them all (* April 2017, † April 2019).

Audio Version

Bitcoin’s Gravity read by Guy from cryptoconomy.life

Calling

Sat, 27 Apr 2019 00:00:00 +0000

Callings are a very strange thing, and I sometimes find myself in a pickle trying to explain phenomena like these rationally. There are certain things you have to do, but you can’t really explain it. You just know this is something you need to be doing right now. Sometimes it’s things you always wanted to do, but never had the courage; sometimes it’s things you don’t want to do at all. Peculiar things, those callings.

Seventy-three men sailed in, from the San Francisco Bay,
Rolled off of their ship and here’s what they had to say.
We’re calling everyone to ride along, to another shore.
Where we can laugh our lives away and be free once more.

Mike Pinera and Frank “Skip” Konte

A calling for another shore, where we can laugh our lives away and be free once more. Sounds like a call I should answer.

Happiness

Thu, 04 Apr 2019 00:00:00 +0000

Thomas Jefferson wrote about the sacred and undeniable truth that all men are created equal and independent. And that from this equal creation inherent and inalienable rights are derived, among which are the preservation of life, liberty, and the pursuit of happiness.

The pursuit of happiness. What a peculiar game played by us all. A race to an imaginary finish line. Everyone is running while the line is always receding. It seems to be a cruel joke played by the universe that all things worth pursuing are elusive by nature. Happiness, love, comfort, being remembered. But then again, all in life is fleeting, and what was there a moment ago will be gone in the next.

They say you can’t really remember pain, remembering only the fact of it, not the precise way it feels. Maybe the same thing’s true of happiness.

William Barton

The heroin addict shows us that happiness in and of itself is not to be desired. It seems that what is essential is the pursuit, and the fleeting moments of happiness are nothing but a side-effect of this pursuit.

Aldous Huxley showed us that a brave new world, a world in which all people are happy all the time, is not to be desired. I think what is true for worlds is true for individuals. The question remains, however. What should be pursued?

Happiness in the ordinary sense is not what one needs in life, though one is right to aim at it. The true satisfaction is to come through and see those whom one loves come through.

E. M. Forster

And if ordinary happiness is not to be pursued, what should take its place instead? Is there such a thing as true happiness? And if there is, what is it?

I don’t have answers to these questions. Not tonight. What I can answer, at least partly, is what I would rather have than ordinary happiness: genuine experience. The real world, not the brave new one. Water, not heroin. Meaning, not soul-crushing drudgery.

Happiness is when what you think, what you say, and what you do are in harmony.

Mahatma Gandhi

Thinking, saying and doing meaningful things. Maybe this is my pursuit of happiness.

Strangers

Wed, 03 Apr 2019 00:00:00 +0000

We have met many people in the last few months. Some remained strangers, some became friends. Most we won’t see again. Of course, in these foreign lands, it is we who are the strangers.

“And you are to love those who are foreigners, for you yourselves were foreigners in Egypt,” the Bible reminds us. But how can we love foreigners, if we often have trouble loving those who aren’t? How can we love others if we have trouble loving ourselves? T.S. Eliot reminds us that we have to get to know ourselves and each other anew every day. The only constant in life is change, after all.

We die to each other daily.
What we know of other people
Is only our memory of the moments
During which we knew them. And they have changed since then.
To pretend that they and we are the same
Is a useful and convenient social convention
Which must sometimes be broken. We must also remember
That at every meeting we are meeting a stranger.

T. S. Eliot

We are living in strange times. Not too long ago, our parents warned us to never get into a stranger’s car. Now we summon strangers and their cars with the push of a button. We have a million ways to connect with strangers and friends, yet many friends become estranged, and many strangers never become friends.

The stranger is simply a friend I haven’t met yet.

Catherine Doherty

We are often strangers to ourselves, not knowing what to do, not understanding our actions, wants or needs. This is as obvious as it is interesting, and for reasons which I can’t articulate very well yet, I am quite convinced that it has to be this way. I might entertain this thought another time. For now, I will have to entertain four strangers.

Be not forgetful to entertain strangers, for thereby some have entertained angels unawares.

Paul of Tarsus, Hebrews 13:2

How well can we ever get to know a stranger? How well can we get to know ourselves? Is this even desirable, or should we just be comfortable with the stranger in each and every one of us?

I try to be comfortable, and I think I am getting better at it. For example, I do not consider myself to be particularly religious. Yet it is the bible which I have quoted three times while writing this. Strange, isn’t it.

I have been a stranger in a strange land.

Moses, Exodus 2:22

Technological Teachings of Bitcoin

Tue, 02 Apr 2019 00:00:00 +0000

What is Bitcoin? The many answers to this question are as interesting as they are varied. Bitcoin is both a social and a monetary phenomenon, but it is also a technological one. The intersection of many disciplines is what makes Bitcoin endlessly fascinating. Like many others, I began to stumble down this strange rabbit hole a while ago. Even though this article is the last of this series, I am still stumbling down with no end in sight, and I invite you to stumble along with me.

This is the third chapter of a personal journey. Again, I am indebted to Arjun Balaji who asked the following on Twitter: “What have you learned from Bitcoin?” It is this question which has led me to write this series to outline some of the things I’ve learned.

Part one explored what I’ve learned from Bitcoin when seen through a philosophical lens: the interplay of immutability and change, copying and scarcity, Bitcoin’s origin story and identity, locality in a world of replication, money as free speech, and the limits of knowledge.

Part two discussed some of the economic teachings of Bitcoin: the concept of value, (sound) money and its history, inflation, and some aspects of “modern” banking like fractional reserve banking.

Part three will explore seven things I have learned from examining Bitcoin through the lens of technology. As in the previous parts, I will only be able to scratch the surface. Bitcoin is an expanding universe, evolving and improving every day. Whole books can be and have been written on small, specific parts of this cosmos. And just like in our own universe, the expansion seems to be accelerating.

Find lessons 1–7 here and lessons 8–14 here.

Lesson 15: Strength in numbers

Numbers are an essential part of our everyday life. Large numbers, however, aren’t something most of us are too familiar with. The largest numbers we might encounter in everyday life are in the range of millions, billions, or trillions. We might read about millions of people in poverty, billions of dollars spent on bank bailouts, and trillions of national debt. Even though it’s hard to make sense of these headlines, we are somewhat comfortable with the size of those numbers.

Although we might seem comfortable with billions and trillions, our intuition already starts to fail with numbers of this magnitude. Do you have an intuition how long you would have to wait for a million/billion/trillion seconds to pass? If you are anything like me, you are lost without actually crunching the numbers.

Let’s take a closer look at this example: the difference between each is an increase by three orders of magnitude: 10⁶, 10⁹, 10¹². Thinking about seconds is not very useful, so let’s translate this into something we can wrap our head around:

10⁶: One million seconds was 1½ weeks ago.
10⁹: One billion seconds was almost 32 years ago.
10¹²: One trillion seconds ago Manhattan was covered under a thick layer of ice.

About 1 trillion seconds ago. Source: xkcd #1125

As soon as we enter the beyond-astronomical realm of modern cryptography, our intuition fails catastrophically. Bitcoin is built around large numbers and the virtual impossibility of guessing them. These numbers are way, way larger than anything we might encounter in day-to-day life. Many orders of magnitude larger. Understanding how large these numbers truly are is essential to understanding Bitcoin as a whole.

Let’s take SHA-256, one of the hash functions used in Bitcoin, as a concrete example. It is only natural to think about 256 bits as “two hundred fifty-six,” which isn’t a large number at all. However, the number in SHA-256 is talking about orders of magnitude — something our brains are not well-equipped to deal with.

While bit length is a convenient metric, the true meaning of 256-bit security is lost in translation. Similar to the millions (10⁶) and billions (10⁹) above, the number in SHA-256 is about orders of magnitude (2²⁵⁶).

So, how strong is SHA-256, exactly?

SHA-256 is very strong. It’s not like the incremental step from MD5 to SHA1. It can last several decades unless there’s some massive breakthrough attack.”

Satoshi Nakamoto

Let’s spell things out. 2²⁵⁶ equals the following number:

115 quattuorvigintillion 792 trevigintillion 89 duovigintillion 237 unvigintillion 316 vigintillion 195 novemdecillion 423 octodecillion 570 septendecillion 985 sexdecillion 8 quindecillion 687 quattuordecillion 907 tredecillion 853 duodecillion 269 undecillion 984 decillion 665 nonillion 640 octillion 564 septillion 39 sextillion 457 quintillion 584 quadrillion 7 trillion 913 billion 129 million 639 thousand 936.

That’s a lot of nonillions! Wrapping your head around this number is pretty much impossible. There is nothing in the physical universe to compare it to. It is far larger than the number of atoms in the observable universe. The human brain simply isn’t made to make sense of it.

One of the best visualizations of the true strength of SHA-256 is the following video by Grant Sanderson. Aptly named “How secure is 256 bit security?” it beautifully shows how large a 256-bit space is. Do yourself a favor and take the five minutes to watch it. As all other 3Blue1Brown videos it is not only fascinating but also exceptionally well made. Warning: You might fall down a math rabbit hole.

Answer: Pretty secure.

Bruce Schneier used the physical limits of computation to put this number into perspective: even if we could build an optimal computer, which would use any provided energy to flip bits perfectly, build a Dyson sphere around our sun, and let it run for 100 billion billion years, we would still only have a 25% chance to find a needle in a 256-bit haystack.

These numbers have nothing to do with the technology of the devices; they are the maximums that thermodynamics will allow. And they strongly imply that brute-force attacks against 256-bit keys will be infeasible until computers are built from something other than matter and occupy something other than space.”

Bruce Schneier

It is hard to overstate the profoundness of this. Strong cryptography inverts the power-balance of the physical world we are so used to. Unbreakable things do not exist in the real world. Apply enough force, and you will be able to open any door, box, or treasure chest.

Bitcoin’s treasure chest is very different. It is secured by strong cryptography, which does not give way to brute force. And as long as the underlying mathematical assumptions hold, brute force is all we have. Granted, there is also the option of a global $5 wrench attack. But torture won’t work for all bitcoin addresses, and the cryptographic walls of bitcoin will defeat brute force attacks. Even if you come at it with the force of a thousand suns. Literally.

This fact and its implications were poignantly summarized in the call to cryptographic arms: “No amount of coercive force will ever solve a math problem.”

It isn’t obvious that the world had to work this way. But somehow the universe smiles on encryption.”

Julian Assange

Nobody yet knows for sure if the universe’s smile is genuine or not. It is possible that our assumption of mathematical asymmetries is wrong and we find that P actually equals NP, or we find surprisingly quick solutions to specific problems which we currently assume to be hard. If that should be the case, cryptography as we know it will cease to exist, and the implications would most likely change the world beyond recognition.

Vires in Numeris” = “Strength in Numbers”

epii

Vires in numeris is not only a catchy motto used by bitcoiners. The realization that there is an unfathomable strength to be found in numbers is a profound one. Understanding this, and the inversion of existing power balances which it enables changed my view of the world and the future which lies ahead of us.

One direct result of this is the fact that you don’t have to ask anyone for permission to participate in Bitcoin. There is no page to sign up, no company in charge, no government agency to send application forms to. Simply generate a large number and you are pretty much good to go. The central authority of account creation is mathematics. And God only knows who is in charge of that.

Elliptic curve examples (cc-by-sa Emmanuel Boutet)

Bitcoin is built upon our best understanding of reality. While there are still many open problems in physics, computer science, and mathematics, we are pretty sure about some things. That there is an asymmetry between finding solutions and validating the correctness of these solutions is one such thing. That computation needs energy is another one. In other words: finding a needle in a haystack is harder than checking if the pointy thing in your hand is indeed a needle or not. And finding the needle takes work.

The vastness of Bitcoin’s address space is truly mind-boggling. The number of private keys even more so. It is fascinating how much of our modern world boils down to the improbability of finding a needle in an unfathomably large haystack. I am now more aware of this fact than ever.

Bitcoin taught me that there is strength in numbers.

Lesson 16: Reflections on “Don’t Trust, Verify”

Bitcoin aims to replace, or at least provide an alternative to, conventional currency. Conventional currency is bound to a centralized authority, no matter if we are talking about legal tender like the US dollar or modern monopoly money like Fortnite’s V-Bucks. In both examples, you are bound to trust the central authority to issue, manage and circulate your money. Bitcoin unties this bound, and the main issue Bitcoin solves is the issue of trust.

The root problem with conventional currency is all the trust that’s required to make it work. […] What is needed is an electronic payment system based on cryptographic proof instead of trust”

Satoshi

Bitcoin solves the problem of trust by being completely decentralized, with no central server or trusted parties. Not even trusted third parties, but trusted parties, period. When there is no central authority, there simply is no-one to trust. Complete decentralization is the innovation. It is the root of Bitcoin’s resilience, the reason why it is still alive. Decentralization is also why we have mining, nodes, hardware wallets, and yes, the blockchain. The only thing you have to “trust” is that our understanding of mathematics and physics isn’t totally off and that the majority of miners act honestly (which they are incentivized to do).

While the regular world operates under the assumption of “trust, but verify,” Bitcoin operates under the assumption of “don’t trust, verify.” Satoshi made the importance of removing trust very clear in both the introduction as well as the conclusion of the Bitcoin whitepaper.

Conclusion: We have proposed a system for electronic transactions without relying on trust.”

Satoshi Nakamoto

Note that “without relying on trust” is used in a very specific context here. We are talking about trusted third parties, i.e. other entities which you trust to produce, hold, and process your money. It is assumed, for example, that you can trust your computer.

As Ken Thompson showed in his Turing Award lecture, trust is an extremely tricky thing in the computational world. When running a program, you have to trust all kinds of software (and hardware) which, in theory, could alter the program you are trying to run in a malicious way. As Thompson summarized in his Reflections on Trusting Trust: “The moral is obvious. You can’t trust code that you did not totally create yourself.”

Thompson demonstrated that even if you have access to the source code, your compiler — or any other program-handling program or hardware — could be compromised and detecting this backdoor would be very difficult. Thus, in practice, a truly trustless system does not exist. You would have to create all your software and all your hardware (assemblers, compilers, linkers, etc.) from scratch, without the aid of any external software or software-aided machinery.

If you wish to make an apple pie from scratch, you must first invent the universe.”

Carl Sagan

The Ken Thompson Hack is a particularly ingenious and hard-to-detect backdoor, so let’s take a quick look at a hard-to-detect backdoor which works without modifying any software. Researchers found a way to compromise security-critical hardware by altering the polarity of silicon impurities. Just by changing the physical properties of the stuff that computer chips are made of they were able to compromise a cryptographically secure random number generator. Since this change can’t be seen, the backdoor can’t be detected by optical inspection, which is one of the most important tamper-detection mechanism for chips like these.

Stealthy Dopant-Level Hardware Trojans by Becker, Regazzoni, Paar, Burleson

Sounds scary? Well, even if you would be able to build everything from scratch, you would still have to trust the underlying mathematics. You would have to trust that secp256k1 is an elliptic curve without backdoors. Yes, malicious backdoors can be inserted in the mathematical foundations of cryptographic functions and arguably this has already happened at least once. There are good reasons to be paranoid, and the fact that everything from your hardware, to your software, to the elliptic curves used can have backdoors are some of them.

Don’t trust. Verify.”

The above examples should illustrate that trustless computing is utopic. Bitcoin is probably the one system which comes closest to this utopia, but still, it is trust-minimized — aiming to remove trust wherever possible. Arguably, the chain-of-trust is neverending, since you will also have to trust that computation requires energy, that P does not equal NP, and that you are actually in base reality and not emprisoned in a simulation by malicious actors.

Developers are working on tools and procedures to minimize any remaining trust even further. For example, Bitcoin developers created Gitian, which is a software distribution method to create deterministic builds. The idea is that if multiple developers are able to reproduce identical binaries, the chance of malicious tampering is reduced. Fancy backdoors aren’t the only attack vector. Simple blackmail or extortion are real threats as well. As in the main protocol, decentralization is used to minimize trust.

Various efforts are being made to improve upon the chicken-and-egg problem of bootstrapping which Ken Thompson’s hack so brilliantly pointed out. One such effort is Guix (pronounced geeks), which uses functionally declared package management leading to bit-for-bit reproducible builds by design. The result is that you don’t have to trust any software-providing servers anymore since you can verify that the served binary was not tampered with by rebuilding it from scratch. As of this writing, a pull-request is in progress to integrate Guix into the Bitcoin build process.

Which came first, the chicken or the egg?

Luckily, Bitcoin doesn’t rely on a single algorithm or piece of hardware. One effect of Bitcoin’s radical decentralization is a distributed security model. Although the backdoors described above are not to be taken lightly, it is unlikely that every software wallet, every hardware wallet, every cryptographic library, every node implementation, and every compiler of every language is compromised. Possible, but highly unlikely.

Note that you can generate a private key without relying on any computational hardware or software. You can flip a coin a couple of times, although depending on your coin and tossing style this source of randomness might not be sufficiently random. There is a reason why storage protocols like Glacier advise to use casino-grade dice as one of two sources of entropy.

Bitcoin forced me to reflect on what trusting nobody actually entails. It raised my awareness of the bootstrapping problem, and the implicit chain-of-trust in developing and running software. It also raised my awareness of the many ways in which software and hardware can be compromised.

Bitcoin taught me not to trust, but to verify.

Lesson 17: Telling time takes work

It is often said that bitcoins are mined because thousands of computers work on solving very complex mathematical problems. Certain problems are to be solved, and if you compute the right answer, you “produce” a bitcoin. While this simplified view of bitcoin mining might be easier to convey, it does miss the point somewhat. Bitcoins aren’t produced or created, and the whole ordeal is not really about solving particular math problems. Also, the math isn’t particularly complex. What is complex is telling the time in a decentralized system.

As outlined in the whitepaper, the proof-of-work system (aka mining) is a way to implement a distributed timestamp server.

Excerpts from the whitepaper. Did someone say timechain?

When I first learned how Bitcoin works I also thought that proof-of-work is inefficient and wasteful. After a while, I started to shift my perspective on Bitcoin’s energy consumption. It seems that proof-of-work is still widely misunderstood today, in the year 10 AB (after Bitcoin).

Since the problems to be solved in proof-of-work are made up, many people seem to believe that it is useless work. If the focus is purely on the computation, this is an understandable conclusion. But Bitcoin isn’t about computation. It is about independently agreeing on the order of things.

Proof-of-work is a system in which everyone can validate what happened and in what order it happened. This independent validation is what leads to consensus, an individual agreement by multiple parties about who owns what.

In a radically decentralized environment, we don’t have the luxury of absolute time. Any clock would introduce a trusted third party, a central point in the system which had to be relied upon and could be attacked. “Timing is the root problem,” as Grisha Trubetskoy points out. And Satoshi brilliantly solved this problem by implementing a decentralized clock via a proof-of-work blockchain. Everyone agrees beforehand that the chain with the most cumulative work is the source of truth. It is per definition what actually happened. This agreement is what is now known as Nakamoto consensus.

The network timestamps transactions by hashing them into an ongoing chain which serves as proof of the sequence of events witnessed”

Satoshi Nakamoto

Without a consistent way to tell the time, there is no consistent way to tell before from after. Reliable ordering is impossible. As mentioned above, Nakamoto consensus is Bitcoin’s way to consistently tell the time. The system’s incentive structure produces a probabilistic, decentralized clock, by utilizing both greed and self-interest of competing participants. The fact that this clock is imprecise is irrelevant because the order of events is eventually unambiguous and can be verified by anyone.

Thanks to proof-of-work, both the work and the validation of the work are radically decentralized. Everyone can join and leave at will, and everyone can validate everything at all times. Not only that, but everyone can validate the state of the system individually, without having to rely on anyone else for validation.

Understanding proof-of-work takes time. It is often counter-intuitive, and while the rules are simple, they lead to quite complex phenomena. For me, shifting my perspective on mining helped. Useful, not useless. Validation, not computation. Time, not blocks.

Bitcoin taught me that telling the time is tricky, especially if you are decentralized.

Lesson 18: Move slowly and don’t break things

It might be a dead mantra, but “move fast and break things” is still how much of the tech world operates. The idea that it doesn’t matter if you get things right the first time is a basic pillar of the fail early, fail often mentality. Success is measured in growth, so as long as you are growing everything is fine. If something doesn’t work at first you simply pivot and iterate. In other words: throw enough shit against the wall and see what sticks.

Bitcoin is very different. It is different by design. It is different out of necessity. As Satoshi pointed out, e-currency has been tried many times before, and all previous attempts have failed because there was a head which could be cut off. The novelty of Bitcoin is that it is a beast without heads.

A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s. I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them.”

Satoshi Nakamoto

One consequence of this radical decentralization is an inherent resistance to change. “Move fast and break things” does not and will never work on the Bitcoin base layer. Even if it would be desirable, it wouldn’t be possible without convincing everyone to change their ways. That’s distributed consensus. That’s the nature of Bitcoin.

The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime.”

Satoshi Nakamoto

This is one of the many paradoxical properties of Bitcoin. We all came to believe that anything which is software can be changed easily. But the nature of the beast makes changing it bloody hard.

As Hasu beautifully shows in Unpacking Bitcoin’s Social Contract, changing the rules of Bitcoin is only possible by proposing a change, and consequently convincing all users of Bitcoin to adopt this change. This makes Bitcoin very resilient to change, even though it is software.

This resilience is one of the most important properties of Bitcoin. Critical software systems have to be antifragile, which is what the interplay of Bitcoin’s social layer and its technical layer guarantees. Monetary systems are adversarial by nature, and as we have known for thousands of years solid foundations are essential in an adversarial environment.

The rain came down, the floods came, and the winds blew, and beat on that house; and it didn’t fall, for it was founded on the rock.”

Matthew 7:24–27

Arguably, in this parable of the wise and the foolish builders Bitcoin isn’t the house. It is the rock. Unchangeable, unmoving, providing the foundation for a new financial system.

Just like geologists, who know that rock formations are always moving and evolving, one can see that Bitcoin is always moving and evolving as well. You just have to know where to look and how to look at it.

The introduction of pay to script hash and segregated witness are proof that Bitcoin’s rules can be changed if enough users are convinced that adopting said change is to the benefit of the network. The latter enabled the development of the lightning network, which is one of the houses being built on Bitcoin’s solid foundation. Future upgrades like Schnorr signatures will enhance efficiency and privacy, as well as scripts (read: smart contracts) which will be indistinguishable from regular transactions thanks to Taproot. Wise builders do indeed build on solid foundations.

Satoshi wasn’t only a wise builder technologically. He also understood that it would be necessary to make wise decisions ideologically.

Being open source means anyone can independently review the code. If it was closed source, nobody could verify the security. I think it’s essential for a program of this nature to be open source.”

Satoshi Nakamoto

Openness is paramount to security and inherent in open source and the free software movement. As Satoshi pointed out, secure protocols and the code which implements them have to be open — there is no security through obscurity. Another benefit is again related to decentralization: code which can be run, studied, modified, copied, and distributed freely ensures that it is spread far and wide.

The radically decentralized nature of Bitcoin is what makes it move slowly and deliberately. A network of nodes, each run by a sovereign individual, is inherently resistant to change — malicious or not. With no way to force updates upon users the only way to introduce changes is by slowly convincing each and every one of those individuals to adopt a change. This non-central process of introducing and deploying changes is what makes the network incredibly resilient to malicious changes. It is also what makes fixing broken things more difficult than in a centralized environment, which is why everyone tries not to break things in the first place.

Bitcoin taught me that moving slowly is one of its features, not a bug.

Lesson 19: Privacy is not dead

If pundits are to believed, privacy has been dead since the 80ies. The pseudonymous invention of Bitcoin and other events in recent history show that this is not the case. Privacy is alive, even though it is by no means easy to escape the surveillance state.

Satoshi went through great lengths to cover up his tracks and conceal his identity. Ten years later, it is still unknown if Satoshi Nakamoto was a single person, a group of people, male, female, or a time-traveling AI which bootstrapped itself to take over the world. Conspiracy theories aside, Satoshi chose to identify himself to be a Japanese male, which is why I don’t assume but respect his chosen gender and refer to him as he.

I am not Dorian Nakamoto.

Whatever his real identity might be, Satoshi was successful in hiding it. He set an encouraging example for everyone who wishes to remain anonymous: it is possible to have privacy online.

Encryption works. Properly implemented strong crypto systems are one of the few things that you can rely on.”

Edward Snowden

Satoshi wasn’t the first pseudonymous or anonymous inventor, and he won’t be the last. Some have directly imitated this pseudonymous publication style, like Tom Elvis Yedusor of MimbleWimble fame, while others have published advanced mathematical proofs while remaining completely anonymous.

It is a strange new world we are living in. A world where identity is optional, contributions are accepted based on merit, and people can collaborate and transact freely. It will take some adjustment to get comfortable with these new paradigms, but I strongly believe that all of this has the potential to change the world for the better.

We should all remember that privacy is a fundamental human right. And as long as people exercise and defend these rights the battle for privacy is far from over. Bitcoin taught me that privacy is not dead.

Lesson 20: Cypherpunks write code

Like many great ideas, Bitcoin didn’t come out of nowhere. It was made possible by utilizing and combining many innovations and discoveries in mathematics, physics, computer science, and other fields. While undoubtedly a genius, Satoshi wouldn’t have been able to invent Bitcoin without the giants on whose shoulders he was standing on.

He who only wishes and hopes does not interfere actively with the course of events and with the shaping of his own destiny.”

Ludwig Von Mises

One of these giants is Eric Hughes, one of the founders of the cypherpunk movement and author of the cypherpunk manifesto. It’s hard to imagine that Satoshi wasn’t influenced by this manifesto. It speaks of many things which Bitcoin enables and utilizes, such as direct and private transactions, electronic money and cash, anonymous systems, and defending privacy with cryptography and digital signatures.

Privacy is necessary for an open society in the electronic age. […] Since we desire privacy, we must ensure that each party to a transaction have knowledge only of that which is directly necessary for that transaction. […]

Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system. An anonymous transaction system is not a secret transaction system. […]

We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money.

Cypherpunks write code.”

Eric Hughes

Cypherpunks do not find comfort in hopes and wishes. They actively interfere with the course of events and shape their own destiny. Cypherpunks write code.

Thus, in true cypherpunk fashion, Satoshi sat down and started to write code. Code which took an abstract idea and proved to the world that it actually worked. Code which planted the seed of a new economic reality. Thanks to this code, everyone can verify that this novel system actually works, and every 10 minutes or so Bitcoin proofs to the world that it is still living.

Code excerpts from Bitcoin version 0.1.0

To make sure that his innovation transcends fantasy and becomes reality, Satoshi wrote code to implement his idea before he wrote the whitepaper. He also made sure not to delay any release forever. After all, “there’s always going to be one more thing to do.”

I had to write all the code before I could convince myself that I could solve every problem, then I wrote the paper.”

Satoshi Nakamoto

In today’s world of endless promises and doubtful execution, an exercise in dedicated building was desperately needed. Be deliberate, convince yourself that you can actually solve the problems, and implement the solutions. We should all aim to be a bit more cypherpunk.

Bitcoin taught me that cypherpunks write code.

Lesson 21: Metaphors for Bitcoin’s future

In the last couple of decades, it became apparent that technological innovation does not follow a linear trend. Whether you believe in the technological singularity or not, it is undeniable that progress is exponential in many fields. Not only that, but the rate at which technologies are being adopted is accelerating, and before you know it the bush in the local schoolyard is gone and your kids are using Snapchat instead. Exponential curves have the tendency to slap you in the face way before you see them coming.

Bitcoin is an exponential technology built upon exponential technologies. Our World in Data beautifully shows the rising speed of technological adoption, starting in 1903 with the introduction of landlines. Landlines, electricity, computers, the internet, smartphones; all follow exponential trends in price-performance and adoption. Bitcoin does too.

Bitcoin is literally off the charts.

Bitcoin has not one but multiple network effects, all of which resulting in exponential growth patterns in their respective area: price, users, security, developers, market share, and adoption as global money.

Having survived its infancy, Bitcoin is continuing to grow every day in more aspects than one. Granted, the technology has not reached maturity yet. It might be in its adolescence. But if the technology is exponential, the path from obscurity to ubiquity is short.

Mobile phone, ca 1965 vs 2019.

In his 2003 TED talk, Jeff Bezos chose to use electricity as a metaphor for the web’s future. All three phenomena — electricity, the internet, Bitcoin — are enabling technologies, networks which enable other things. They are infrastructure to be built upon, foundational in nature.

Electricity has been around for a while now. We take it for granted. The internet is quite a bit younger, but most people already take it for granted as well. Bitcoin is ten years old and has entered public consciousness during the last hype cycle. Only the earliest of adopters take it for granted. As more time passes, more and more people will recognize Bitcoin as something which simply is.

In 1994, the internet was still confusing and unintuitive. Watching this old recording of the Today Show makes it obvious that what feels natural and intuitive now actually wasn’t back then. Bitcoin is still confusing and alien to most, but just like the internet is second nature for digital natives, spending and stacking sats will be second nature to the bitcoin natives of the future.

The future is already here — it’s just not very evenly distributed.”

William Gibson

In 1995, about 15% of American adults used the internet. Historical data from the Pew Research Center shows how the internet has woven itself into all our lives. According to a consumer survey by Kaspersky Lab, 13% of respondents have used Bitcoin and its clones to pay for goods in 2018. While payments aren’t the only use-case of bitcoin, it is some indication of where we are in Internet time: in the early- to mid-90s.

In 1997, Jeff Bezos stated in a letter to shareholders that “this is Day 1 for the Internet,” recognizing the great untapped potential for the internet and, by extension, his company. Whatever day this is for Bitcoin, the vast amounts of untapped potential are clear to all but the most casual observer.

The internet, 1982 vs 2005. Source: cc-by Merit Network, Inc. and Barrett Lyon, Opte Project

Bitcoin’s first node went online in 2009 after Satoshi mined the genesis block and released the software into the wild. His node wasn’t alone for long. Hal Finney was one of the first people to pick up on the idea and join the network. Ten years later, as of this writing, more than 10.000 nodes are running bitcoin.

The protocol’s base layer isn’t the only thing growing exponentially. The lightning network, a second layer technology, is growing at an even faster rate.

In January 2018, the lightning network had 40 nodes and 60 channels. In April 2019, the network grew to more than 4000 nodes and around 40.000 channels. Keep in mind that this is still experimental technology where loss of funds can and does occur. Yet the trend is clear: thousands of people are reckless and eager to use it.

Lightning Network, January 2018 vs December 2018. Source: Jameson Lopp

To me, having lived through the meteoric rise of the web, the parallels between the internet and Bitcoin are obvious. Both are networks, both are exponential technologies, and both enable new possibilities, new industries, new ways of life. Just like electricity was the best metaphor to understand where the internet is heading, the internet might be the best metaphor to understand where bitcoin is heading. Or, in the words of Andreas Antonopoulos, Bitcoin is The Internet of Money. These metaphors are a great reminder that while history doesn’t repeat itself, it often rhymes.

Exponential technologies are hard to grasp and often underestimated. Even though I have a great interest in such technologies, I am constantly surprised by the pace of progress and innovation. Watching the Bitcoin ecosystem grow is like watching the rise of the internet in fast-forward. It is exhilarating.

My quest of trying to make sense of Bitcoin has led me down the pathways of history in more ways than one. Understanding ancient societal structures, past monies, and how communication networks evolved were all part of the journey. From the handaxe to the smartphone, technology has undoubtedly changed our world many times over. Networked technologies are especially transformational: writing, roads, electricity, the internet. All of them changed the world. Bitcoin has changed mine and will continue to change the minds and hearts of those who dare to use it.

Bitcoin taught me that understanding the past is essential to understanding its future. A future which is just beginning.

Conclusion

Technology is all about the application of scientific knowledge to solve problems in the real world. Every technology has to make tradeoffs in terms of efficiency, cost, security, and many other properties. Just like there is no perfect solution to deriving a square from a circle, any solution to the problems which Bitcoin tries to solve will always be imperfect as well.

Da Vinci tried to solve the intractable problem of squaring a circle with the Vitruvian Man, which places a human right at the center of it. Bitcoin tries to solve the double spending problem with sovereign individuals, which places humans behind each node, effectively removing any concept of a center.

Bitcoin’s headless nature shows us that seemingly simple concepts like creating accounts and agreeing on time require creative solutions in decentralized systems. It also shows that such systems can be astonishingly antifragile. How do you best kill something if the best point of attack is everywhere?

Even with all its quirks and seeming shortcomings, Bitcoin undoubtedly works. It keeps producing blocks roughly every ten minutes and does so beautifully. The longer Bitcoin continues to work, the more people will opt-in to use it.

It’s true that things are beautiful when they work. Art is function.”

Giannina Braschi

Bitcoin is growing exponentially, blurring the line between disciplines. It isn’t clear where the realm of pure technology ends and where another realm begins. I tried to differentiate the economic teachings of Bitcoin from the philosophical and the technological ones, which turned out more difficult than expected.

Just like in biological systems, removing one part seems to affect the whole. Maybe the most important lesson is that Bitcoin should be examined holistically, from multiple angles, if one would like to have a complete picture. Just like removing one part from Bitcoin destroys the whole (*cough* blockchain *cough*), examining parts of Bitcoin in isolation seems to taint the understanding of the whole system.

My journey continues, and as mentioned in part one, I think that any answer to the question “What have you learned from Bitcoin?” will always be incomplete. In any case, I’ve learned that the philosophy, economics, and technology of Bitcoin interact in a complex feedback loop, and I hope that these 21 lessons are just the beginning of what I’ve learned from Bitcoin.

Acknowledgments

Once more, thanks to Arjun Balaji for the tweet which gave birth to this series.
Thanks to Andreas M. Antonopoulos for all the educational material he has put out over the years.
Thanks to Marty and Matt for guiding me through the rabbit hole and reminding us all to stay humble and stack sats.
Thanks to Francis Pouliot for sharing his excitement about finding out about the timechain.
Thanks to Brandon, Camilo, Daniel, Jannik, Michael, and Raphael for providing feedback to early drafts of this article
Thanks to the countless authors and content producers who influenced my thinking on Bitcoin and the topics it touches. There are simply too many to name.
And finally, thank you for reading this series. I hope you enjoyed it as much as I did enjoy writing it. Feel free to reach out to me on twitter. My DMs are open.

Dance

Sat, 30 Mar 2019 00:00:00 +0000

“I stand at the seashore, alone, and start to think. There are the rushing waves … mountains of molecules, each stupidly minding its own business … trillions apart … yet forming white surf in unison.

Ages on ages … before any eyes could see … year after year … thunderously pounding the shore as now. For whom, for what? … on a dead planet, with no life to entertain.

Never at rest … tortured by energy … wasted prodigiously by the sun … poured into space. A mite makes the sea roar.

Deep in the sea, all molecules repeat the patterns of one another till complex new ones are formed. They make others like themselves … and a new dance starts.

Growing in size and complexity … living things, masses of atoms, DNA, protein … dancing a pattern ever more intricate.

Out of the cradle onto the dry land … here it is standing … atoms with consciousness … matter with curiosity.

Stands at the sea … wonders at wondering … I … a universe of atoms … an atom in the universe.

The same thrill, the same awe and mystery, come again and again when we look at any problem deeply enough. With more knowledge comes deeper, more wonderful mystery, luring one on to penetrate deeper still. Never concerned that the answer may prove disappointing, but with pleasure and confidence we turn over each new stone to find unimagined strangeness leading on to more wonderful questions and mysteries – certainly a grand adventure!

It is true that few unscientific people have this particular type of religious experience. Our poets do not write about it; our artists do not try to portray this remarkable thing. I don’t know why. Is nobody inspired by our present picture of the universe? The value of science remains unsung by singers, so you are reduced to hearing – not a song or a poem, but an evening lecture about it. This is not yet a scientific age.

Perhaps one of the reasons is that you have to know how to read the music. For instance, the scientific article says, perhaps, something like this: “The radioactive phosphorus content of the cerebrum of the rat decreases to one-half in a period of two weeks.” Now, what does that mean?

It means that phosphorus that is in the brain of a rat (and also in mine, and yours) is not the same phosphorus as it was two weeks ago, but that all of the atoms that are in the brain are being replaced, and the ones that were there before have gone away.

So what is this mind, what are these atoms with consciousness? Last week’s potatoes! That is what now can remember what was going on in my mind a year ago – a mind which has long ago been replaced.

This is what it means when one discovers how long it takes for the atoms of the brain to be replaced by other atoms, to note that the thing which I call my individuality is only a pattern or dance. The atoms come into my brain, dance a dance, then go out; always new atoms but always doing the same dance, remembering what the dance was yesterday.”

Richard Feynman, The Pleasure of Finding Things Out

Paths

Wed, 13 Mar 2019 00:00:00 +0000

We have been told that all paths lead to truth — you have your path as a Hindu and someone else has his path as a Christian and another as a Muslim, and they all meet at the same door — which is, when you look at it, so obviously absurd. Truth has no path, and that is the beauty of truth, it is living. A dead thing has a path to it because it is static, but when you see that truth is something living, moving, which has no resting place, which is in no temple, mosque or church, which no religion, no teacher, no philosopher, nobody can lead you to — then you will also see that this living thing is what you actually are — your anger, your brutality, your violence, your despair, the agony and sorrow you live in. In the understanding of all this is the truth, and you can understand it only if you know how to look at those things in your life. And you cannot look through an ideology, through a screen of words, through hopes and fears.

Jiddu Krishnamurti

Waves

Sat, 09 Mar 2019 00:00:00 +0000

Most things seem to arrive in waves. Good things and bad things, motions and emotions, living things and inanimate objects, challenges and opportunities.

The line between surfing a wave and being crushed by it is a thin one. Some might be able to enjoy the bigger waves, being skilled and familiar with the nature of the beast. Others are crushed by smaller ones, and some might even drown in a tranquil sea.

Some waves seem to be frozen in time, moving so slowly that it’s hard to believe they move at all. Others move with infinite swiftness, arriving at the same time all at once - from the viewpoint of the wave, at least.

Waves are powerful beyond comprehension. They bring down bridges and skyscrapers, make people fall in love, start revolutions and let you read this sentence, no matter the medium.

The study of waves is important to virtually every branch of science and engineering. Indeed, waves are also important to everyday life. Sound waves allow us to hear, and electromagnetic waves allow us to see.

D. S. Drumheller

We follow and race
In shifting chase,
Over the boundless ocean-space!
Who hath beheld when the race begun?
Who shall behold it run?

Bayard Taylor, The Waves.

The last few weeks were a surreal experience. While visiting an ocean of beautiful places, I tried my best to stay upright on a wave of challenges and opportunities. My surfing was far from a masterful dance, but at least my bones weren’t crushed on the reef.

What to do after all this paddling? They say that there is calm before the storm, but there is also calm after. I intend to use this calm to rest. Rest and recover, sleep and dream. Lie at the ocean and look at the waves.

Sleepe after toyle, port after stormie seas,
Ease after warre, death after life, does greatly please.

Edmund Spenser, The Faerie Queene

Outlook

Wed, 27 Feb 2019 00:00:00 +0000

There are apartments in the soul which have a glorious outlook; from whose windows you can see across the river of death, and into the shining city beyond; but how often are these neglected for the lower ones, which have earthward-looking windows!

Henry Ward Beecher

It may be that earthward-looking windows do not allow you to see the shining city beyond, but some of these windows are awe-inspiring nevertheless. We were fortunate enough to look earthward in the last couple of weeks, both from high above and from deep underground.

My view of the world keeps changing as I grow older. It changed more in the last three years than I ever thought it would. Albert Schweitzer once said that “world-view is a product of life-view, not vice versa.” So maybe my view of life is what changed.

If we are to change our world view, images have to change. The artist now has a very important job to do.

David Hockney

Artists have indeed changed my world view. So have scientists, engineers, philosophers, economists, and many other people who might have less “prestigious” professions. Prestigious professions and shiny titles don’t matter anyway. What matters, in the end, depends on your point of view.

A shift in perspective is a dangerous thing: you might start to see things differently, and before you know it, your whole world view has changed.

Asked where he came from, he said,
‘I am a citizen of the world.’

Diogenes Laërtius, vi. 63

Ducks

Tue, 19 Feb 2019 00:00:00 +0000

“Where are we heading?”
“Upstream.”
“Why? We will just drift down again, ending up right where we started.”
“Exactly.”

Birds

Sun, 10 Feb 2019 00:00:00 +0000

There are people who love birds so much they free them. There are others who love them so much they cage them.

Gene Wolfe

Stairs

Fri, 01 Feb 2019 00:00:00 +0000

Wherever we go, we encounter stairs. Steep ones and flat ones, both to wonderful places and to nowhere. They are everywhere, no matter where you are, no matter what you do. Up implies down. Difference implies hierarchy. Some ladders you climb with your hand and feet, others you climb with your mind. Some stairs are moving up on their own, others are a slippery, frozen hell.

What do we have left once we abandon the lie?
Chaos.
A gaping pit waiting to swallow us all.
Chaos isn’t a pit.
Chaos is a ladder.
Many who try to climb it fail and never get to try again.
The fall breaks them. And some are given a chance to climb, but they refuse. They cling to the realm or the gods or love.
Illusions.
Only the ladder is real.
The climb is all there is.

David Benioff & D. B. Weiss

My mind has been a bit chaotic the last few days. Traveling can be chaotic, as all travelers know. Especially if your ambitions are all over the place. I want to read more, I want to write more, I want to take more pictures. There are even more things I want to do more of, but I’m afraid that even without those additional “mores” it might already be too much. Too much of anything quickly invites chaos. Ambitions stop to matter in times of chaos, no matter how innocuous their beginnings. The road to hell is paved with good intentions, as they say.

We saw plenty of people at the bottom of stairs. Some may have fallen from great heights. Some may have started at zero and are still close to where they started. Some were robbed of any possibilities and had no chance to climb, no matter how eager they were.

Two guys were celebrating with pizza and coke next to us. The drink, not the powder, mind you. We had a brief conversation and I was curious what the reason for their celebration was. “It’s the first day I’m out,” one of the guys told me. He was about my age, so I asked how long he was “in”, assuming that he was in jail for a couple of months or so. “15 years,” is what he told me, still ecstatic about his regained freedom.

What can you say to a person who was incarcerated for half his life? I think “good luck” was all I was able to manage in the moment.

From how high some of these souls fell is impossible to judge. In that sense, the bottom might be seen as nonjudgemental. Inequalities are hard to spot if everyone is at ground level.

One level lower, and all inequalities are ground to dust. Swallowed up by the earth. Digested by worms. In the end, walking the walk is all that counts. Up, and down, and up again. If you are lucky. At the end of the game, the king and the pawn go back in the same box.

Who was the fool,
who the wise man,
who the beggar or the emperor?
Whether rich or poor, all are equal in death.

Vierzeiliger oberdeutscher Totentanz

Not everyone who is at the bottom got there by accident. Nor is everyone miserable. Some are at the bottom because the bottom represents a new opportunity to climb again. “Reboot my life,” to quote one woman we met.

Second chances. New beginnings. First steps. Every bottom has the potential to be a starting point for something great. Also, some things in life are best climbed together.

This is the predicament of man. All souls descend a ladder from heaven to the world. Then the ladders are taken away. Once they are in this world, they are called upon from heaven to rise, to come back. It is a call that goes out again and again. Each soul seeks the ladder in order to ascend above; but the ladder cannot be found. Most people make no effort to ascend, claiming, how can one rise to heaven without a ladder? However, there are souls which resolve to leap upwards without a ladder. So they jump and fall down. They jump and fall down, until they stop. Wise people think that since no ladder exists, there must be another way. We must face the challenge and act. Be what it may, one must leap until God, in His mercy, makes exultation come about.

Abraham Joshua Heschel

404. Ladder not found. If Led Zeppelin has taught us anything it is that there is no ladder to ascend above. There is a stairway to heaven, and stairways can be walked.

Not all stairs are serious business. After two months in the land of “mart carts” and escalators leading up to fitness centers and gyms, it is time to laugh at the absurdity of it all. Maybe this is all we have. Loving and laughing. Loving the chaos of life. Laughing in the face of death. After all, climbing stairs is more fun if you aren’t taking it too seriously. No matter if you are going up or down.

An escalator can never break, it can only become stairs. You would never see an “Escalator Temporarily Out Of Order” sign, just “Escalator Temporarily Stairs. Sorry for the convenience. We apologize for the fact that you can still get up there.

Mitch Hedberg

Remembrance

Sat, 12 Jan 2019 00:00:00 +0000

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.

Brian Eno

Economic Teachings of Bitcoin

Fri, 11 Jan 2019 00:00:00 +0000

Money doesn’t grow on trees. To believe that it does is foolish, and our parents make sure that we know about that by repeating this saying like a mantra. We are encouraged to use money wisely, to not spend it frivolously, and to save it in good times to help us through the bad. Money, after all, does not grow on trees.

Bitcoin taught me more about money than I ever thought I would need to know. Through it, I was forced to explore the history of money, banking, various schools of economic thought, and many other things. The quest to understand Bitcoin lead me down a plethora of paths, some of which I try to explore in this series. This is the second of three parts:

In Part I of this series, some of the philosophical questions Bitcoin touches on were discussed. Part II will take a closer look at money and economics. Again, I will only be able to scratch the surface. Bitcoin is not only ambitious, but also broad and deep in scope, making it impossible to cover all relevant topics in a single essay, article, or book. I am starting to doubt if it is even possible at all.

Bitcoin is a child of many disciplines. Being a new form of money, learning about economics is paramount in understanding it. Dealing with the nature of human action and the interactions of economic agents, economics is probably one of the largest and fuzziest pieces of the Bitcoin puzzle.

Blind monks examining Bitcoin

Like the first part, this essay is an exploration of the various things I have learned from Bitcoin. And just like the first part, it is a personal reflection of my journey down the rabbit hole. Having no background in economics, I am definitely out of my comfort zone and aware that any understanding I might have is incomplete. Like blind monks examining an elephant, everyone who approaches this novel technology does so from a different angle and will come to different conclusions. Blindfolded as I am, I will try to outline what I have learned, even at the risk of making a fool out of myself. After all, I am still trying to answer the question:

“What have you learned from Bitcoin?”

After seven lessons examined through the lens of philosophy, let’s use the lens of economics to look at seven more. I hope that you will find the world of Bitcoin as educational, fascinating and entertaining as I did and still do. In any case, hop on and enjoy the ride. Economy class is all I can offer this time. Final destination: sound money.

Find lessons 1-7 here.

Lesson 8: Financial Ignorance

One of the most surprising things, to me, was the amount of finance, economics, and psychology required to get a grasp of what at first glance seems to be a purely technical system — a computer network. To paraphrase a little guy with hairy feet: “It’s a dangerous business, Frodo, stepping into Bitcoin. You read the whitepaper, and if you don’t keep your feet, there’s no knowing where you might be swept off to.”

To understand a new monetary system, you have to get acquainted with the old one. I began to realize very soon that the amount of financial education I enjoyed in the educational system was essentially zero.

Like a five-year-old, I began to ask myself a lot of questions: How does the banking system work? How does the stock market work? What is fiat money? What is regular money? Why is there so much debt? How much money is actually printed, and who decides that?

After a mild panic about the sheer scope of my ignorance, I found reassurance in realizing that I was in good company.

Isn’t it ironic that Bitcoin has taught me more about money than all these years I’ve spent working for financial institutions? …including starting my career at a central bank”

aarontaycc

I’ve learned more about finance, economics, technology, cryptography, human psychology, politics, game theory, legislation, and myself in the last three months of crypto than the last three and a half years of college”

bitcoindunny

These are just two of the many confessions all over twitter. Bitcoin, as was explored in part one, is a living thing. Mises argued that economics also is a living thing. And as we all know from personal experience, living things are inherently difficult to understand.

A scientific system is but one station in an endlessly progressing search for knowledge. It is necessarily affected by the insufficiency inherent in every human effort. But to acknowledge these facts does not mean that present-day economics is backward. It merely means that economics is a living thing — and to live implies both imperfection and change.”

Ludwig von Mises

We all read about various financial crises in the news, wonder about how these big bailouts work and are puzzled over the fact that no one ever seems to be held accountable for damages which are in the trillions. I am still puzzled, but at least I am starting to get a glimpse of what is going on in the world of finance.

Some people even go as far as to attribute the general ignorance on these topics to systemic, willful ignorance. While history, physics, biology, math, and languages are all part of our education, the world of money and finance surprisingly is only explored superficially, if at all. I wonder if people would still be willing to accrue as much debt as they currently do if everyone would be educated in personal finance and the workings of money and debt. Then I wonder how many layers of aluminum make an effective tinfoil hat. Probably three.

Those crashes, these bailouts, are not accidents. And neither is it an accident that there is no financial education in school. […] It’s premeditated. Just as prior to the Civil War it was illegal to educate a slave, we are not allowed to learn about money in school.”

Robert Kiyosaki

Like in The Wizard of Oz, we are told to pay no attention to the man behind the curtain. Unlike in The Wizard of Oz, we now have real wizardry: a censorship-resistant, open, borderless network of value-transfer. There is no curtain, and the magic is visible to anyone.

Bitcoin taught me to look behind the curtain and face my financial ignorance.

Lesson 9: Inflation

Trying to understand monetary inflation, and how a non-inflationary system like Bitcoin might change how we do things, was the starting point of my venture into economics. I knew that inflation was the rate at which new money was created, but I didn’t know too much beyond that.

While some economists argue that inflation is a good thing, others argue that “hard” money which can’t be inflated easily —as we had in the days of the gold standard — is essential for a healthy economy. Bitcoin, having a fixed supply of 21 million, agrees with the latter camp.

Usually, the effects of inflation are not immediately obvious. Depending on the inflation rate (as well as other factors) the time between cause and effect can be several years. Not only that, but inflation affects different groups of people more than others. As Henry Hazlitt points out in Economics in One Lesson: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

One of my personal lightbulb moments was the realization that issuing new currency — printing more money — is a completely different economic activity than all the other economic activities. While real goods and real services produce real value for real people, printing money effectively does the opposite: it takes away value from everyone who holds the currency which is being inflated.

Mere inflation — that is, the mere issuance of more money, with the consequence of higher wages and prices — may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not.”

Henry Hazlitt

The destructive force of inflation becomes obvious as soon as a little inflation turns into a lot. If money hyperinflates, things get ugly real quick. As the inflating currency falls apart, it will fail to store value over time and people will rush to get their hands on any goods which might do.

Another consequence of hyperinflation is that all the money which people have saved over the course of their life will effectively vanish. The paper money in your wallet will still be there, of course. But it will be exactly that: worthless paper.

Hyperinflation in the Weimar Republic (1921-1923)

Money declines in value with so-called “mild” inflation as well. It just happens slowly enough that most people don’t notice the diminishing of their purchasing power. And once the printing presses are running, currency can be easily inflated, and what used to be mild inflation might turn into a strong cup of inflation by the push of a button. As Friedrich Hayek pointed out in one of his essays, mild inflation usually leads to outright inflation.

“Mild” steady inflation cannot help — it can lead only to outright inflation.”

Friedrich Hayek

Inflation is particularly devious since it favors those who are closer to the printing presses. It takes time for the newly created money to circulate and prices to adjust, so if you are able to get your hands on more money before everyone else’s devaluates you are ahead of the inflationary curve. This is also why inflation can be seen as a hidden tax because in the end governments profit from it while everyone else ends up paying the price.

I do not think it is an exaggeration to say history is largely a history of inflation, and usually of inflations engineered by governments for the gain of governments.”

Friedrich Hayek

So far, all government-controlled currencies have eventually been replaced or have collapsed completely. No matter how small the rate of inflation, “steady” growth is just another way of saying exponential growth. In nature as in economics, all systems which grow exponentially will eventually have to level off or suffer from catastrophic collapse.

“It can’t happen in my country,” is what you’re probably thinking. You don’t think that if you are from Venezuela, which is currently suffering from hyperinflation. With an inflation rate of over 1 million percent, money is basically worthless.

It might not happen in the next couple of years, or to the particular currency used in your country. But a glance at the list of historical currencies shows that it will inevitably happen over a long enough period of time. I remember and used plenty of those listed: the Austrian schilling, the German mark, the Italian lira, the French franc, the Irish pound, the Croatian dinar, etc. My grandma even used the Austro-Hungarian Krone. As time moves on, the currencies currently in use will slowly but surely move to their respective graveyards. They will hyperinflate or be replaced. They will soon be historical currencies. We will make them obsolete.

History has shown that governments will inevitably succumb to the temptation of inflating the money supply.”

Saifedean Ammous

Why is Bitcoin different? In contrast to currencies mandated by the government, monetary goods which are not regulated by governments, but by the laws of physics, tend to survive and even hold their respective value over time. The best example of this so far is gold, which, as the aptly-named Gold-to-Decent-Suit Ratio shows, is holding its value over hundreds and even thousands of years. It might not be perfectly “stable” — a questionable concept in the first place — but the value it holds will at least be in the same order of magnitude.

If a monetary good or currency holds its value well over time and space, it is considered to be hard. If it can’t hold its value, because it easily deteriorates or inflates, it is considered a soft currency. The concept of hardness is essential to understand Bitcoin and is worthy of a more thorough examination. We will return to it in the last economic lesson: sound money.

As more and more countries suffer from hyperinflation, more and more people will have to face the reality of hard and soft money. If we are lucky, maybe even some central bankers will be forced to re-evaluate their monetary policies. Whatever might happen, the insights I have gained thanks to Bitcoin will probably be invaluable, no matter the outcome.

Bitcoin taught me about the hidden tax of inflation and the catastrophe of hyperinflation.

Lesson 10: Value

Value is somewhat paradoxical, and there are multiple theories which try to explain why we value certain things over other things. People have been aware of this paradox for thousands of years. As Plato wrote in his dialogue with Euthydemus, we value some things because they are rare, and not merely based on their necessity for our survival.

And if you are prudent you will give this same counsel to your pupils also — that they are never to converse with anybody except you and each other. For it is the rare, Euthydemus, that is precious, while water is cheapest, though best, as Pindar said.”

Plato

This paradox of value shows something interesting about us humans: we seem to value things on a subjective basis, but do so with certain non-arbitrary criteria. Something might be precious to us for a variety of reasons, but things we value do share certain characteristics. If we can copy something very easily, or if it is naturally abundant, we do not value it.

It seems that we value something because it is scarce (gold, diamonds, time), difficult or labor-intensive to produce, can’t be replaced (an old photograph of a loved one), is useful in a way in which it enables us to do things which we otherwise couldn’t, or a combination of those, such as great works of art.

Bitcoin is all of the above: it is extremely rare (21 million), increasingly hard to produce (reward halvening), can’t be replaced (a lost private key is lost forever), and enables us to do some quite useful things. It is arguably the best tool for value transfer across borders, virtually resistant to censorship and confiscation in the process, plus, it is a self-sovereign store of value, allowing individuals to store their wealth independent of banks and governments, just to name two.

Bitcoin taught me that value is subjective but not arbitrary.

Lesson 11: Money

What is money? We use it every day, yet this question is surprisingly difficult to answer. We are dependent on it in ways big and small, and if we have too little of it our lives become very difficult. Yet, we seldom think about the thing which supposedly makes the world go round. Bitcoin forced me to answer this question over and over again: What the hell is money?

In our “modern” world, most people will probably think of pieces of paper when they talk about money, even though most of our money is just a number in a bank account. We are already using zeros and ones as our money, so how is Bitcoin different? Bitcoin is different because at its core it is a very different type of money than the money we currently use. To understand this, we will have to take a closer look at what money is, how it came to be, and why gold and silver was used for most of commercial history.

In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes.”

Satoshi Nakamoto

Seashells, gold, silver, paper, bitcoin. In the end, money is whatever people use as money, no matter its shape and form, or lack thereof.

Money, as an invention, is ingenious. A world without money is insanely complicated: How many fish will buy me new shoes? How many cows will buy me a house? What if I don’t need anything right now but I need to get rid of my soon-to-be rotten apples? You don’t need a lot of imagination to realize that a barter economy is maddeningly inefficient.

The great thing about money is that it can be exchanged for anything else — that’s quite the invention! As Nick Szabo brilliantly summarizes in Shelling Out: The Origins of Money, we humans have used all kinds of things as money: beads made of rare materials like ivory, shells, or special bones, various kinds of jewelry, and later on rare metals like silver and gold.

Being the lazy creatures we are, we don’t think too much about things which just work. Money, for most of us, works just fine. Like with our cars or our computers, most of us are only forced to think about the inner workings of these things if they break down. People who saw their life-savings vanish because of hyperinflation know the value of hard money, just like people who saw their friends and family vanish because of the atrocities of Nazi Germany or Soviet Russia know the value of privacy.

The thing about money is that it is all-encompassing. Money is half of every transaction, which imbues the ones who are in charge with creating money with enormous power.

Given that money is one half of every commercial transaction and that whole civilizations literally rise and fall based on the quality of their money, we are talking about an awesome power, one that flies under the cover of night. It is the power to weave illusions that appear real as long as they last. That is the very core of the Fed’s power.”

Ron Paul

Bitcoin peacefully removes this power, since it does away with money creation and it does so without the use of force.

Money went through multiple iterations. Most iterations were good. They improved our money in one way or another. Very recently, however, the inner workings of our money got corrupted. Today, almost all of our money is simply created out of thin air by the powers that be. To understand how this came to be I had to learn about the history and subsequent downfall of money.

If it will take a series of catastrophes or simply a monumental educational effort to correct this corruption remains to be seen. I pray to the gods of sound money that it will be the latter.

Bitcoin taught me what money is.

Lesson 12: The history and downfall of money

Many people think that money is backed by gold, which is locked away in big vaults, protected by thick walls. This ceased to be true many decades ago. I am not sure what I thought, since I was in much deeper trouble, having virtually no understanding of gold, paper money, or why it would need to be backed by something in the first place.

One part of learning about Bitcoin is learning about fiat money: what it means, how it came to be, and why it might not be the best idea we ever had. So, what exactly is fiat money? And how did we end up using it?

If something is imposed by fiat, it simply means that it is imposed by formal authorization or proposition. Thus, fiat money is money simply because someone says that it is money. Since all governments use fiat currency today, this someone is your government. Unfortunately, you are not free to disagree with this value proposition. You will quickly feel that this proposition is everything but non-violent. If you refuse to use this paper currency to do business and pay taxes the only people you will be able to discuss economics with will be your cellmates.

The value of fiat money does not stem from its inherent properties. How good a certain type of fiat money is, is only correlated to the political and fiscal (in)stability of those who dream it into existence. Its value is imposed by decree, arbitrarily.

fi·at /ˈfēˌät,ˈfēət/ --- 'Let it be done'

Until recently, two types of money were used: commodity money, made out of precious things, and representative money, which simply represents the precious thing, mostly in writing.

We already touched on commodity money above. People used special bones, seashells, and precious metals as money. Later on, mainly coins made out of precious metals like gold and silver were used as money. The oldest coin found so far is made of a natural gold-and-silver mix and was made more than 2700 years ago. If something is new in Bitcoin, the concept of a coin is not it.

Lydian electrum coin

Turns out that hoarding coins, or hodling, to use today’s parlance, is almost as old as coins. The earliest coin hodler was someone who put almost a hundred of these coins in a pot and buried it in the foundations of a temple, only to be found 2500 years later. Pretty good cold storage if you ask me.

One of the downsides of using precious metal coins is that they can be clipped, effectively debasing the value of the coin. New coins can be minted from the clippings, inflating the money supply over time, devaluing every individual coin in the process. People were literally shaving off as much as they could get away with of their silver dollars. I wonder what kind of Dollar Shave Club advertisements they had back in the day.

Since governments are only cool with inflation if they are the ones doing it, efforts were made to stop this guerrilla debasement. In classic cops-and-robbers fashion, coin clippers got ever more creative with their techniques, forcing the ‘masters of the mint’ to get even more creative with their countermeasures. Isaac Newton, the world-renowned physicist of Principia Mathematica fame, used to be one of these masters. He is attributed with adding the small stripes at the side of coins which are still present today. Gone were the days of easy coin shaving.

Even with these methods of coin debasement kept in check, coins still suffer from other issues. They are bulky and not very convenient to transport, especially when large transfers of value need to happen. Showing up with a huge bag of silver dollars every time you want to buy a Mercedes isn’t very practical.

Speaking of German things: How the United States dollar got its name is another interesting story. The word “dollar” is derived from the German word Thaler, short for a Joachimsthaler. A Joachimsthaler was a coin minted in the town of Sankt Joachimsthal. Thaler is simply a shorthand for someone (or something) coming from the valley, and because Joachimsthal was the valley for silver coin production, people simply referred to these silver coins as Thaler. Thaler (German) morphed into daalders (Dutch), and finally dollars (English).

The original 'dollar'. Saint Joachim is pictured with his robe and wizard hat. Picture cc-by-sa Berlin-George

The introduction of representative money heralded the downfall of hard money. Gold certificates were introduced in 1863, and about fifteen years later, the silver dollar was also slowly but surely being replaced by a paper proxy: the silver certificate.

It took about 50 years from the introduction of the first silver certificates until these pieces of paper morphed into something that we would today recognize as one U.S. dollar.

A 1928 U.S. silver dollar. 'Payable to the bearer on demand.' Picture credit to the National Numismatic Collection at the Smithsonian Institution

Note that the 1928 U.S. silver dollar above still goes by the name of silver certificate, indicating that this is indeed simply a document stating that the bearer of this piece of paper is owed a piece of silver. It is interesting to see that the text which indicates this got smaller over time. The trace of “certificate” vanished completely after a while, being replaced by the reassuring statement that these are federal reserve notes.

As mentioned above, the same thing happened to gold. Most of the world was on a bimetallic standard, meaning coins were made primarily of gold and silver. Having certificates for gold, redeemable in gold coins, was arguably a technological improvement. Paper is more convenient, lighter, and since it can be divided arbitrarily by simply printing a smaller number on it, it is easier to break into smaller units.

To remind the bearers (users) that these certificates were representative for actual gold and silver, they were colored accordingly and stated this clearly on the certificate itself. You can fluently read the writing from top to bottom:

This certifies that there have been deposited in the treasury of the United States of America one hundred dollars in gold coin payable to the bearer on demand.”

Picture credit to National Numismatic Collection, National Museum of American History.

In 1963, the words “PAYABLE TO THE BEARER ON DEMAND” were removed from all newly issued notes. Five years later, the redemption of paper notes for gold and silver ended.

The words hinting on the origins and the idea behind paper money were removed. The golden color disappeared. All that was left was the paper and with it the ability of the government to print as much of it as it wishes.

With the abolishment of the gold standard in 1971, this century-long sleight-of-hand was complete. Money became the illusion we all share to this day: fiat money. It is worth something because someone commanding an army and operating jails says it is worth something. As can be clearly read on every dollar note in circulation today, “THIS NOTE IS LEGAL TENDER”. In other words: It is valuable because the note says so.

A 2004 series U.S. twenty dollar note used today. 'THIS NOTE IS LEGAL TENDER'

By the way, there is another interesting lesson on today’s bank notes, hidden in plain sight. The second line reads that this is legal tender “FOR ALL DEBTS, PUBLIC AND PRIVATE”. What might be obvious to economists was surprising to me: All money is debt. My head is still hurting because of it, and I will leave the exploration of the relation of money and debt as an exercise to the reader.

As we have seen, gold and silver were used as money for millennia. Over time, coins made from gold and silver were replaced by paper. Paper slowly became accepted as payment. This acceptance created an illusion — the illusion that the paper itself has value. The final move was to completely sever the link between the representation and the actual: abolishing the gold standard and convincing everyone that the paper in itself is precious.

Bitcoin taught me about the history of money and the greatest sleight of hand in the history of economics: fiat currency.

Lesson 13: Fractional Reserve Insanity

Value and money aren’t trivial topics, especially in today’s times. The process of money creation in our banking system is equally non-trivial, and I can’t shake the feeling that this is deliberately so. What I have previously only encountered in academia and legal texts seems to be common practice in the financial world as well: nothing is explained in simple terms, not because it is truly complex, but because the truth is hidden behind layers and layers of jargon and apparent complexity. “Expansionary monetary policy, quantitative easing, fiscal stimulus to the economy.” The audience nods along in agreement, hypnotized by the fancy words.

Fractional reserve banking and quantitative easing are two of those fancy words, obfuscating what is really happening by masking it as complex and difficult to understand. If you would explain them to a five-year-old, the insanity of both will become apparent quickly.

Godfrey Bloom, addressing the European Parliament during a joint debate, said it way better than I ever could:

[…] you do not really understand the concept of banking. All the banks are broke. Bank Santander, Deutsche Bank, Royal Bank of Scotland — they’re all broke! And why are they broke? It isn’t an act of God. It isn’t some sort of tsunami. They’re broke because we have a system called ‘fractional reserve banking’ which means that banks can lend money that they don’t actually have! It’s a criminal scandal and it’s been going on for too long. […]

We have counterfeiting — sometimes called quantitative easing — but counterfeiting by any other name. The artificial printing of money which, if any ordinary person did, they’d go to prison for a very long time […] and until we start sending bankers — and I include central bankers and politicians — to prison for this outrage it will continue.”

Godfrey Bloom

Let me repeat the most important part: banks can lend money that they don’t actually have.

Thanks to fractional reserve banking, a bank only has to keep a small fraction of every dollar it gets. It’s somewhere between 0 and 10%, usually at the lower end, which makes things even worse.

Let’s use a concrete example to better understand this crazy idea: A fraction of 10% will do the trick and we should be able to do all the calculations in our head. Win-win. So, if you take $100 to a bank — because you don’t want to store it under your mattress — they only have to keep the agreed upon fraction of it. In our example that would be $10, because 10% of $100 is $10. Easy, right?

So what do banks do with the rest of the money? What happens to your $90? They do what banks do, they lend it to other people. The result is a money multiplier effect, which increases the money supply in the economy enormously. Your initial deposit of $100 will soon turn into $190. By lending a 90% fraction of the newly created $90, there will soon be $271 in the economy. And $343.90 after that. The money supply is recursively increasing, since banks are literally lending money they don’t have. Without a single Abracadabra, banks magically transform $100 into one thousand dollars or more. Turns out 10x is easy. It only takes a couple of lending rounds.

Don’t get me wrong: There is nothing wrong with lending. There is nothing wrong with interest. There isn’t even anything wrong with good old regular banks to store your wealth somewhere more secure than in your sock drawer.

Central banks, however, are a different beast. Abominations of financial regulation, half public half private, playing god with something which affects everyone who is part of our global civilization, without a conscience, only interested in the immediate future, and seemingly without any accountability or auditability.

While Bitcoin is still inflationary, it will cease to be so rather soon. The strictly limited supply of 21 million bitcoins will eventually do away with inflation completely. We now have two monetary worlds: an inflationary one where money is printed arbitrarily, and the world of Bitcoin, where final supply is fixed and easily auditable for everyone. One is forced upon us by violence, the other can be joined by anyone who wishes to do so. No barriers to entry, no one to ask for permission. Voluntary participation. That is the beauty of Bitcoin.

I would argue that the argument between Keynesian and Austrian economists is no longer purely academical. Satoshi managed to build a system for value transfer on steroids, creating the soundest money which ever existed in the process. One way or another, more and more people will learn about the scam which is fractional reserve banking. If they come to similar conclusions as most Austrians and Bitcoiners, they might join the ever-growing internet of money. Nobody can stop them if they choose to do so.

Bitcoin taught me that fractional reserve banking is pure insanity.

Lesson 14: Sound money

The most important lesson I have learned from Bitcoin is that in the long run, hard money is superior to soft money. Hard money, also referred to as sound money, is any globally traded currency that serves as a reliable store of value.

Granted, Bitcoin is still young and volatile. Critics will say that it does not store value reliably. The volatility argument is missing the point. Volatility is to be expected. The market will take a while to figure out the just price of this new money. Also, as is often jokingly pointed out, it is grounded in an error of measurement. If you think in dollars you will fail to see that one bitcoin will always be worth one bitcoin.

A fixed money supply, or a supply altered only in accord with objective and calculable criteria, is a necessary condition to a meaningful just price of money.”

Fr. Bernard W. Dempsey, S.J.

As a quick stroll through the graveyard of forgotten currencies has shown, money which can be printed will be printed. So far, no human in history was able to resist this temptation.

Bitcoin does away with the temptation to print money in an ingenious way. Satoshi was aware of our greed and fallibility — this is why he chose something more reliable than human restraint: mathematics.

Bitcoin's supply formula

While this formula is useful to describe Bitcoin’s supply, it is actually nowhere to be found in the code. Issuance of new bitcoin is done in an algorithmically controlled fashion, by reducing the reward which is paid to miners every four years. The formula above is used to quickly sum up what is happening under the hood. What really happens can be best seen by looking at the change in block reward, the reward paid out to whoever finds a valid block, which roughly happens every 10 minutes.

Formulas, logarithmic functions and exponentials are not exactly intuitive to understand. The concept of soundness might be easier to understand if looked at in another way. Once we know how much there is of something, and once we know how hard this something is to produce or get our hands on, we immediately understand its value. What is true for Picasso’s paintings, Elvis Presley’s guitars, and Stradivarius violins is also true for fiat currency, gold, and bitcoins.

The hardness of fiat currency depends on who is in charge of the respective printing presses. Some governments might be more willing to print large amounts of currency than others, resulting in a weaker currency. Other governments might be more restrictive in their money printing, resulting in harder currency.

Before we had fiat currencies, the soundness of money was determined by the natural properties of the stuff which we used as money. The amount of gold on earth is limited by the laws of physics. Gold is rare because supernovae and neutron star collisions are rare. The “flow” of gold is limited because extracting it is quite an effort. Being a heavy element it is mostly buried deep underground.

The abolishment of the gold standard gave way to a new reality: adding new money requires just a drop of ink. In our modern world adding a couple of zeros to the balance of a bank account requires even less effort: flipping a few bits in a bank computer is enough.

One important aspect of this new reality is that institutions like the Fed cannot go bankrupt. They can print any amount of money that they might need for themselves at virtually zero cost.”

Jörg Guido Hülsmann

The principle outlined above can be expressed more generally as the ratio of “stock” to “flow”. Simply put, the stock is how much of something is currently there. For our purposes, the stock is a measure of the current money supply. The flow is how much there is produced over a period of time (e.g. per year). The key to understanding sound money is in understanding this stock-to-flow ratio.

Calculating the stock-to-flow ratio for fiat currency is difficult, because how much money there is depends on how you look at it. You could count only banknotes and coins (M0), add traveler checks and check deposits (M1), add saving accounts and mutual funds and some other things (M2), and even add certificates of deposit to all of that (M3). Further, how all of this is defined and measured varies from country to country and since the US Federal Reserve stopped publishing numbers for M3, we will have to make do with the M2 monetary supply. I would love to verify these numbers, but I guess we have to trust the fed for now.

Gold, one of the rarest metals on earth, has the highest stock-to-flow ratio. According to the US Geological Survey, a little more than 190,000 tons have been mined. In the last few years, around 3100 tons of gold have been mined per year.

Using these numbers, we can easily calculate the stock-to-flow ratio for gold: 190,000 tons / 3,100 tons = ~61.

Nothing has a higher stock-to-flow ratio than gold. This is why gold, up to now, was the hardest, soundest money in existence. It is often said that all the gold mined so far would fit in two olympic-sized swimming pools. According to my calculations, we would need four. So maybe this needs updating, or Olympic-sized swimming pools got smaller.

Enter Bitcoin. As you probably know, bitcoin mining was all the rage in the last couple of years. This is because we are still in the early phases of what is called the reward era, where mining nodes are rewarded with a lot of bitcoin for their computational effort. We are currently in reward era number 3, which began in 2016 and will end in early 2020, probably in May. While the bitcoin supply is predetermined, the inner workings of Bitcoin only allow for approximate dates. Nevertheless, we can predict with certainty how high Bitcoin’s stock-to-flow ratio will be. Spoiler alert: it will be high.

How high? Well, it turns out that Bitcoin will get infinitely hard.

Visualization of stock and flow for USD, gold, and Bitcoin

Due to an exponential decrease of the mining reward, the flow of new bitcoin will diminish resulting in a sky-rocketing stock-to-flow ratio. It will catch up to gold in 2020, only to surpass it four years later by doubling its soundness again. Such a doubling will occur 64 times in total. Thanks to the power of exponentials, the number of bitcoin mined per year will drop below 100 bitcoin in 50 years and below 1 bitcoin in 75 years. The global faucet which is the block reward will dry up somewhere around the year 2140, effectively stopping the production of bitcoin. This is a long game. If you are reading this, you are still early.

Rising stock-to-flow ratio of bitcoin as compared to gold

As bitcoin approaches infinite stock to flow ratio it will be the soundest money in existence. Infinite soundness is hard to beat.

Viewed through the lens of economics, Bitcoin’s difficulty adjustment is probably its most important component. How hard it is to mine bitcoin depends on how quickly new bitcoins are mined*. It is the dynamic adjustment of the network’s mining difficulty which enables us to predict its future supply.

(* It actually depends on how quickly valid blocks are found, but for our purposes, this is the same thing as “mining bitcoins” and will be so for the next 120 years.)

The simplicity of the difficulty adjustment algorithm might distract from its profundity, but the difficulty adjustment truly is a revolution of Einsteinian proportions. It ensures that, no matter how much or how little effort is spent on mining, Bitcoin’s controlled supply won’t be disrupted. As opposed to every other resource, no matter how much energy someone will put into mining bitcoin, the total reward will not increase.

Just like E=mc² dictates the universal speed limit in our universe, Bitcoin’s difficulty adjustment dictates the universal money limit in Bitcoin.

If it weren’t for this difficulty adjustment, all bitcoins would have been mined already. If it weren’t for this difficulty adjustment, Bitcoin probably wouldn’t have survived in its infancy. It is what secures the network in its reward era. It is what ensures a steady and fair distribution of new bitcoin. It is the thermostat which regulates Bitcoin’s monetary policy.

Einstein showed us something novel: no matter how hard you push an object, at a certain point you won’t be able to get more speed out of it. Satoshi also showed us something novel: no matter how hard you dig for this digital gold, at a certain point you won’t be able to get more bitcoin out of it. For the first time in human history, we have a monetary good which, no matter how hard you try, you won’t be able to produce more of.

Bitcoin taught me that me that sound money is essential.

Conclusion

As we leave the “blockchain not bitcoin” days behind us, most people start to realize that there is not a single invention which encapsulates the genius of Bitcoin. It is the combination of multiple, previously unrelated pieces, glued together by game theoretical incentives, which make up the revolution that is Bitcoin.

For me, the economic teachings of Bitcoin are as fascinating as the philosophical ones examined in part one. Being a technophile, I can’t wait to tell you what Bitcoin taught me about technology in the third and final part of this series.

As mentioned before, I think that any answer to the question “What have you learned from Bitcoin?” will always be incomplete. The symbiosis of the two living systems examined here — Bitcoin and economics — is too intertwined and evolving too fast to ever be fully understood by a single person.

“I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can’t stop.”

Friedrich Hayek

Learning these lessons enabled me to finally understand what Hayek meant by the above. I believe that Bitcoin is the sly, roundabout way to re-introduce sound money to the world. Thanks to the economic teachings of Bitcoin I learned what good money is and that having it is possible.

What have you learned from Bitcoin?

Acknowledgments

Again, thanks to Arjun Balaji for the tweet which gave birth to this series.
Thanks to Saifedean Ammous for his convictions, savage tweets, and writing The Bitcoin Standard
Thanks to Dhruv Bansal for taking the time to discuss some of these ideas with me.
Thanks to Matt Odell for his candor and also for taking the time to discuss some of these ideas with me, even if he doesn’t remember all of it.
Thanks to Michael Goldstein and Pierre Rochard for curating and providing relevant literature via the Nakamoto Institute
Thanks to Jannik, Camilo, and Matt for providing feedback to early drafts of this article

Idling

Sat, 05 Jan 2019 00:00:00 +0000

So much to do,
yet so little time.
What am I gonna do,
with the time that is mine.

So much to say,
both silent and loud.
Everyone wants to idle.
But no idling allowed.

Street Art

Wed, 26 Dec 2018 00:00:00 +0000

Sometimes I wonder why the “rational“ world, the world of science and technology, is often so far removed from the arts. It seems to me that everyone, no matter the discipline, is after the same thing: truth, beauty, and maybe a little bit of meaning.

Rationality is what we do to organize the world, to make it possible to predict. Art is the rehearsal for the inapplicability and failure of that process.

Brian Eno

Only some people dare to venture in both of these worlds. Richard Feynman was one of those people. He was not only a brilliant physicist as well as an artist, but he was also an eloquent writer, speaker, and most of all an amazing teacher. He talked eloquently about beauty, curiosity, honors, the key to science, and so much more.

Feynman noticed that many people seem to think that science and the arts are at odds with one another. He was bothered by this point of view, since, in his opinion, science only adds to the beauty of the world. I happen to agree.

I have a friend who’s an artist, and he sometimes takes a view which I don’t agree with. He’ll hold up a flower and say, “Look how beautiful it is,” and I’ll agree. But then he’ll say, “I, as an artist, can see how beautiful a flower is. But you, as a scientist, take it all apart and it becomes dull. I think he’s kind of nutty. … There are all kinds of interesting questions that come from a knowledge of science, which only adds to the excitement and mystery and awe of a flower. It only adds. I don’t understand how it subtracts.

Richard Feynman

Art is everywhere around us. We only have to dare to look.

Street art, in whatever form, is something that has been fascinating me for a long time. Maybe it’s because of its anti-authority, bottom-up nature. Maybe it’s because it puts art in places where you don’t usually expect it. Maybe it’s because it is done just because. Although you could say that about most art, I guess.

The most beautiful and deepest experience a man can have is the sense of the mysterious. It is the underlying principle of religion as well as all serious endeavor in art and science. He who never had this experience seems to me, if not dead, then at least blind.

Albert Einstein

In any case, making something beautiful is very powerful. It transforms something which otherwise might be bleak into something worth looking at. Something joyful. Something worth visiting. How many people would visit the Sistine Chapel if it wouldn’t be amazingly beautiful?

It seems like people are more decent if things are beautiful. If a place is cleaned up, like for example subway trains and stations, and it is looked after so it stays clean and pretty, some interesting things happen: crime goes down, littering goes down, people behave in a more civilized manner. I have first read about this broken window theory in a book about software engineering. Art, orderliness, engineering, morality. Everything is just a couple of stops away.

I am aware that the world is way more complicated than that. There are uncountable problems without any easy solutions, be it solutions found in art, science, engineering, or any other field. Everything is messy and always will be. Humans doubly so.

While our art cannot, as we wish it could, save us from wars, privation, envy, greed, old age, or death, it can revitalize us amidst it all.

Ray Bradbury

Even if things are messy, I think we can still discern the ugly from the beautiful, no matter how different and subjective our tastes might be. We can at least do it individually. I think the same is true for day-to-day decisions, small and large, which are ultimately anchored in our individual moral framework.

Art, like morality, consists in drawing the line somewhere.

G. K. Chesterton

The fact that people find beauty in this city, move here from all over the world and live side-by-side each and every day is beautiful in itself. Most people are good and behave in ways which they deem to be good. And things just work. 9 million people and everyone is able to move freely all over the city. 9 million people, and enough to eat and drink for everybody. 9 million people, and no riots in the streets. 9 million people and the lights are on.

The great artists are the ones who dare to entitle to beauty things so natural that when they’re seen afterward, people say: Why did I never realize before that this too was beautiful?“

André Gide

Philosophical Teachings of Bitcoin

Fri, 21 Dec 2018 00:00:00 +0000

Some questions have easy answers. “What have you learned from Bitcoin?” isn’t one of them. After trying to answer this question in a short tweet, and failing miserably, I realized that the amount of things I’ve learned is far too numerous to answer quickly, if at all. I also realized that any set of answers to this question will be different for everyone — a reflection of the very personal journey through the wonderful world of crypto. Hence, the subtitle of this series is What I’ve Learned From Bitcoin, with which I want to acknowledge the inherent personal bias of answering a question like this.

I tried to group the teachings of Bitcoin by topics, resulting in three parts:

As hinted above, attempting to answer this question fully is a fool’s errand, thus my answers will always be incomplete. I would like to lessen this shortcoming by inviting you, dear reader, to share your own answers to this question:

Bitcoin is indeed a game disguised. It is akin to a trapdoor, a gateway to a different world. A world much stranger than I would have ever imagined it to be. A world which takes your assumptions and shatters them into a thousand tiny pieces, again and again. Stick around for long enough, and Bitcoin will completely change your worldview.

After this, there is no turning back. You take the blue pill — the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill — you stay in Wonderland, and I show you how deep the rabbit hole goes.”

Morpheus

Lesson 1: Immutability and change

Bitcoin is inherently hard to describe. It is a new thing, and any attempt to draw a comparison to previous concepts — be it by calling it digital gold or the internet of money — is bound to fall short of the whole. Whatever your favorite analogy might be, two aspects of Bitcoin are absolutely essential: decentralization and immutability.

One way to think about Bitcoin is as an automated social contract. The software is just one piece of the puzzle, and hoping to change Bitcoin by changing the software is an exercise in futility. One would have to convince the rest of the network to adopt the changes, which is more a psychological effort than a software engineering one.

The following might sound absurd at first, like so many other things in this space, but I believe that it is profoundly true nonetheless: You won’t change Bitcoin, but Bitcoin will change you.

Bitcoin will change us more than we will change it.”

Marty Bent

It took me a long time to realize the profundity of this. Since Bitcoin is just software and all of it is open-source, you can simply change things at will, right? Wrong. Very wrong. Unsurprisingly, Bitcoin’s creator knew this all too well.

The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime.

Satoshi Nakamoto

Many people have attempted to change Bitcoin’s nature. So far all of them have failed. While there is an endless sea of forks and altcoins, the Bitcoin network still does its thing, just as it did when the first node went online. The altcoins won’t matter in the long run. The forks will eventually starve to death. Bitcoin is what matters. As long as our fundamental understanding of mathematics and/or physics doesn’t change, the Bitcoin honeybadger will continue to not care.

Bitcoin is the first example of a new form of life. It lives and breathes on the internet. It lives because it can pay people to keep it alive. […] It can’t be changed. It can’t be argued with. It can’t be tampered with. It can’t be corrupted. It can’t be stopped. […] If nuclear war destroyed half of our planet, it would continue to live, uncorrupted. “

Ralph Merkle

The heartbeat of the Bitcoin network will outlast all of ours.

Realizing the above changed me way more than the past blocks of the Bitcoin blockchain ever will. It changed my time preference, my understanding of economics, my political views, and so much more. Hell, it is even changing people’s diets. If all of this sounds crazy to you, you’re in good company. All of this is crazy, and yet it is happening.

Bitcoin taught me that it won’t change. I will.

Lesson 2: The scarcity of scarcity

In general, the advance of technology seems to make things more abundant. More and more people are able to enjoy what previously have been luxurious goods. Soon, we will all live like kings. Most of us already do. As Peter Diamandis wrote in Abundance: “Technology is a resource-liberating mechanism. It can make the once scarce the now abundant.”

Bitcoin, an advanced technology in itself, breaks this trend and creates a new commodity which is truly scarce. Some even argue that it is one of the scarcest things in the universe. The supply can’t be inflated, no matter how much effort one chooses to expend towards creating more.

Only two things are genuinely scarce: time and bitcoin.”

Saifedean Ammous

Paradoxically, it does so by a mechanism of copying. Transactions are broadcast, blocks are propagated, the distributed ledger is — well, you guessed it — distributed. All of these are just fancy words for copying. Heck, Bitcoin even copies itself onto as many computers as it can, by incentivizing individual people to run full nodes and mine new blocks.

All of this duplication wonderfully works together in a concerted effort to produce scarcity.

In a time of abundance, Bitcoin taught me what real scarcity is.

Lesson 3: An immaculate conception

Everyone loves a good origin story. The origin story of Bitcoin is a fascinating one, and the details of it are more important than one might think at first. Who is Satoshi Nakamoto? Was he one person or a group of people? Was he a she? Time-traveling alien, or advanced AI? Outlandish theories aside, we will probably never know. And this is important.

Satoshi chose to be anonymous. He planted the seed of Bitcoin. He stuck around for long enough to make sure the network won’t die in its infancy. And then he vanished.

What might look like a weird anonymity stunt is actually crucial for a truly decentralized system. No centralized control. No centralized authority. No inventor. No-one to prosecute, torture, blackmail, or extort. An immaculate conception of technology.

One of the greatest things that Satoshi did was disappear.”

Jimmy Song

Since the birth of Bitcoin, thousands of other cryptocurrencies were created. None of these clones share its origin story. If you want to supersede Bitcoin, you will have to transcend its origin story. In a war of ideas, narratives dictate survival.

Gold was first fashioned into jewelry and used for barter over 7,000 years ago. Gold’s captivating gleam led to it being considered a gift from the gods.”

Gold: The Extraordinary Metal

Like gold in ancient times, Bitcoin might be considered a gift from the gods. Unlike gold, Bitcoins origins are all too human. And this time, we know who the gods of development and maintenance are: people all over the world, anonymous or not.

Bitcoin taught me that narratives are important.

Lesson 4: The problem of identity

Nic Carter, in an homage to Thomas Nagel’s treatment of the same question in regards to a bat, wrote an excellent piece which discusses the following question: What is it like to be a bitcoin? He brilliantly shows that open, public blockchains in general, and Bitcoin in particular, suffer from the same conundrum as the Ship of Theseus: which Bitcoin is the real Bitcoin?

Consider just how little persistence Bitcoin’s components have. The entire codebase has been reworked, altered, and expanded such that it barely resembles its original version. […] The registry of who owns what, the ledger itself, is virtually the only persistent trait of the network […]

To be considered truly leaderless, you must surrender the easy solution of having an entity that can designate one chain as the legitimate one.”

Nic Carter

It seems like the advancement of technology keeps forcing us to take these philosophical questions seriously. Sooner or later, self-driving cars will be faced with real-world versions of the trolley problem, forcing them to make ethical decisions about whose lives do matter and whose do not.

Cryptocurrencies, especially since the first contentious hard-fork, force us to think about and agree upon the metaphysics of identity. Interestingly, the two biggest examples we have so far have lead to two different answers. On August 1, 2017, Bitcoin split into two camps. The market decided that the unaltered chain is the original Bitcoin. One year earlier, on October 25, 2016, Ethereum split into two camps. The market decided that the altered chain is the original Ethereum.

If properly decentralized, the questions posed by the Ship of Theseus will have to be answered in perpetuity for as long as these networks of value-transfer exist.

Bitcoin taught me that decentralization contradicts identity.

Lesson 5: Replication and locality

Quantum mechanics aside, locality is a non-issue in the physical world. The question “Where is X?” can be answered in a meaningful way, no matter if X is a person or an object. In the digital world, the question of where is already a tricky one, but not impossible to answer. Where are your emails, really? A bad answer would be “the cloud”, which is just someone else’s computer. Still, if you wanted to track down every storage device which has your emails on it you could, in theory, locate them.

With bitcoin, the question of “where” is really tricky. Where, exactly, are your bitcoins?

I opened my eyes, looked around, and asked the inevitable, the traditional, the lamentably hackneyed postoperative question: ‘Where am l?’”

Daniel Dennett

The problem is twofold: First, the distributed ledger is distributed by full replication, meaning the ledger is everywhere. Second, there are no bitcoins. Not only physically, but technically.

Bitcoin keeps track of a set of unspent transaction outputs, without ever having to refer to an entity which represents a bitcoin. The existence of a bitcoin is inferred by looking at the set of unspent transaction outputs and calling every entry with a 100 million base units a bitcoin.

Where is it, at this moment, in transit? […] First, there are no bitcoins. There just aren’t. They don’t exist. There are ledger entries in a ledger that’s shared […] They don’t exist in any physical location. The ledger exists in every physical location, essentially. Geography doesn’t make sense here — it is not going to help you figuring out your policy here.”

Peter Van Valkenburgh

So, what do you actually own when you say “I have a bitcoin” if there are no bitcoins? Well, remember all these strange words which you were forced to write down by the wallet you used? Turns out these magic words are what you own: a magic spell which can be used to add some entries to the public ledger — the keys to “move” some bitcoins. This is why, for all intents and purposes, your private keys are your bitcoins. If you think I’m making all of this up feel free to send me your private keys.

Bitcoin taught me that locality is a tricky business.

Lesson 6: The power of free speech

Bitcoin is an idea. An idea which, in its current form, is the manifestation of a machinery purely powered by text. Every aspect of Bitcoin is text: The whitepaper is text. The software which is run by its nodes is text. The ledger is text. Transactions are text. Public and private keys are text. Every aspect of Bitcoin is text, and thus equivalent to speech.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

First Amendment to the United States Constitution

Although the final battle of the Crypto Wars has not been fought yet, it will be very difficult to criminalize an idea, let alone an idea which is based on the exchange of text messages. Every time a government tries to outlaw text or speech, we slip down a path of absurdity which inevitably leads to abominations like illegal numbers and illegal primes.

As long as there is a part of the world where speech is free as in freedom, Bitcoin is unstoppable.

There is no point in any Bitcoin transaction that Bitcoin ceases to be text. It is all text, all the time. […]

Bitcoin is text. Bitcoin is speech. It cannot be regulated in a free country like the USA with guaranteed inalienable rights and a First Amendment that explicitly excludes the act of publishing from government oversight.”

Beautyon

Bitcoin taught me that in a free society, free speech and free software are unstoppable.

Lesson 7: The limits of knowledge

Getting into Bitcoin is a humbling experience. I thought that I knew things. I thought that I was educated. I thought that I knew my computer science, at the very least. I studied it for years, so I have to know everything about digital signatures, hashes, encryption, operational security, and networks, right?

Wrong.

Learning all the fundamentals which make Bitcoin work is hard. Understanding all of them deeply is borderline impossible.

No one has found the bottom of the Bitcoin rabbit hole.”

Jameson Lopp

My list of books to read keeps expanding way quicker than I could possibly read them. The list of papers and articles to read is virtually endless. There are more podcasts on all of these topics than I could ever listen to. It truly is humbling. Further, Bitcoin is evolving and it’s almost impossible to stay up-to-date with the accelerating rate of innovation. The dust of the first layer hasn’t even settled yet, and people have already built the second layer and are working on the third.

Bitcoin taught me that I know very little about almost anything. It taught me that this rabbit hole is bottomless.

Conclusion

Bitcoin is a child of the internet. Even though it requires computers to function efficiently, computer science is not sufficient to understand it. The implications of this new technology are far-reaching. Bitcoin is not only borderless but also boundaryless in respect to academic disciplines.

In this first part of the Teachings of Bitcoin I tried to outline some of the philosophical implications of this fascinating machinery. In part two I will try to discuss what Bitcoin taught me about economics. Part three will conclude this series to show what I, a technologist, have learned from the tech perspective by stumbling into Bitcoin.

As mentioned above, I think that any answer to the question “What have you learned from Bitcoin?” will always be incomplete. The systems are too dynamic, the space moving too fast, and the topics too numerous. Politics, game theory, monetary history, network theory, finance, cryptography, information theory, censorship, law and regulation, human organization, psychology — all these and more are areas of expertise which might help to grasp what Bitcoin is.

What have you learned from Bitcoin?

Acknowledgments

Thanks to Arjun Balaji for the tweet which motivated me to write this.
Thanks to Marty Bent for providing endless food for thought and entertainment. If you are not subscribed to Marty’s Ƀent and Tales From The Crypt, you are missing out.
Thanks to Michael Goldstein and Pierre Rochard for curating and providing the greatest Bitcoin literature via the Nakamoto Institute and the Noded Podcast which influenced my philosophical views on Bitcoin substantially.
Thanks to Peter McCormack for his honest tweets and the What Bitcoin Did podcast, which keeps providing great insights from many areas of the space.
Thanks to Jannik for providing feedback to early drafts of this article.
And finally, thanks to all the bitcoin maximalists, shitcoin minimalists, shills, bots, and shitposters which reside in the beautiful garden that is crypto twitter.

Contrasts

Thu, 20 Dec 2018 00:00:00 +0000

Darkness and light. Fire and ice. Water frozen like diamonds and boiling in pools due to volcanic heat below. Long, black nights lit up by dancing auroras. Iceland truly is a land of contrasts.

There is a lot of beauty in these contrasts, and I’m grateful that we were fortunate enough to experience them.

Everything in life is defined by contrasts. Without differentiation all things become meaningless. No beauty without ugliness. No sound without silence. No objects without emptiness. No meaning without meaninglessness. No striving without an ideal to strive towards. No life without death.

Even movement is a meaningless concept without something else to move in relationship to.

Absolutely have to have dark, in order to have light. You gotta have dark. You gotta have opposites: dark and light, light and dark, continually, in painting. You have light on light, you have nothing. If you have dark on dark, you basically have nothing. You know, it’s like in life. Gotta have a little sadness once in a while so you know when the good times come. I’m waiting on the good times now.

Bob Ross

Good times come and go. So do bad times. So does everything else. We know this since the beginning of time.

Eternity isn’t some later time. Eternity isn’t a long time. Eternity has nothing to do with time. Eternity is that dimension of here and now which thinking and time cuts out. This is it. And if you don’t get it here, you won’t get it anywhere. And the experience of eternity right here and now is the function of life. There’s a wonderful formula that the Buddhists have […] and the attitude is not to withdraw from the world when you realize how horrible it is, but to realize that this horror is simply the foreground of a wonder and to come back and participate in it.

Joseph Campbell

Even time needs some contrast to be meaningful. Without anything in relation, even if it is just the arbitrary measuring stick of the human perspective, time itself becomes a difficult concept - more difficult than it already is. If nothing changes, is there even any time?

You see this goblet? For me, this glass is already broken. I enjoy it; I drink out of it. It holds my water admirably, sometimes even reflecting the sun in beautiful patterns. If I should tap it, it has a lovely ring to it. But when I put this glass on the shelf and the wind knocks it over or my elbow brushes it off the table and it falls to the ground and shatters, I say, ‘Of course.’ When I understand that the glass is already broken, every moment with it is precious.

Achaan Chaa

Every moment is precious. If that is so, we should cherish every moment. But, if we really do cherish all of the 8x10^60 moments since the beginning of time, are any of them truly precious?

The above, of course, is an error in reasoning. Since this is not a political argument and I don’t want to push you down a nihilistic hole, let me point out this faulty reasoning. Moments do not gain preciousness because of our cherishing. They simply are.

Of several colors, all equally white, that will look whitest which is against the darkest background. And black will look intensest against the whitest background. And red will look most vivid against the yellowest background; and the same is the case with all colours when surrounded by their strongest contrasts.

Leonardo da Vinci

Time moves on, and so do we. We leave behind the solitude, diving directly into one of the largest cities in the world.

Time is the substance from which I am made. Time is a river which carries me along, but I am the river; it is a tiger that devours me, but I am the tiger; it is a fire that consumes me, but I am the fire.

Jorge Luis Borges

Days of Gray

Fri, 07 Dec 2018 00:00:00 +0000

Despite hours of darkness,
in a land far away,
vivid colors begone,
enjoying some days of gray.

It’s okay to be average. You don’t have to be exceptional at everything you do. You don’t have to strive to be the best in all disciplines all the time. There is nothing wrong with striving, of course, but sometimes it’s worth to do things just because you enjoy doing them.

I will never be a National Geographic photographer, or a Pulitzer Prize-winning author, or a world-class skateboarder. I’m fine with that. I still enjoy taking pictures, writing, and yes, also skateboarding. Even though my best days in regards to the latter are behind me.

Reminding yourself of these truths from time to time is important.

It’s okay to be average.

A bird can just be a bird. When the sun rises it isn’t accompanied by a feeling of dread. It’s daily tasks are solely comprised of being a bird and being a bird still.

Humans are a problem. There’s no place for us. I cant just go out into the woods and be a human. But then again, I have a taste of the finer things and I’m an enlightened person that doesn’t care to live in the woods anyway. So I have a job, I put in my 40+ hours a week, I pay someone for the privilege of having a roof, I drive 15 miles a day, and I take care of a dog.

This lifestyle has cost me friends. It has cost me relationships. I cannot visit my family without it being rubbed in my face that I merely live like a king. That’s right- a king.

The fact of the matter is that I have a steel pod that lets me travel 65mph and traverse hundreds of miles. I have clean air, water, unspoiled food that I didn’t have to even make. I have a bicycle for my mind that lets me express myself in ways that man was unable to for most of recorded history and an audience of thousands subscribed to see what I make. On a daily basis I get to watch cinematic productions that cost millions of dollars to produce. I can role-play with millions of people across the globe in virtual realities. I can, at a moments notice anywhere in the world, talk to people I know, wherever they are. I will likely live to see 90.

Kings never lived like this. Presidents never lived like this. Yet I am apparently barely scraping by.

I could work harder and get a better steel pod. A faster mind-bicycle. A bigger castle. But in the end, if I can’t be happy with the amazing life I have right now, what hope is there that any of that is going to help. If my peers could get off my back I think I’d be okay.

The above quotes are taken from an answer to Why isn’t it ok to be average?

Wanderers

Wed, 05 Dec 2018 00:00:00 +0000

It is strange how leaving an all too familiar place immediately shifts one’s perspective of the past, the present, and the future. Maybe that’s why so many people fall in love with traveling: it seems to enable a perpetual shift in perspective.

We are all wanderers. Some are wandering without ever leaving their familiar surroundings, others wander geographically and yet stay in the same place. Some are aimlessly wandering and blissful, others full of lofty goals, great ambitions, and misery. Some have lost their minds or their hearts, others have lost themselves. And yet, as Tolkien so succinctly said, not all those who wander are lost.

All that is gold does not glitter, Not all those who wander are lost; The old that is strong does not wither, Deep roots are not reached by the frost.

J.R.R. Tolkien

So here I am, wondering about wandering, repeating a fragment of a sentence in my head over and over again: “I wonder, I wonder what you would do if you had the power to dream any dream you wanted to.”

I wonder, I wonder what you would do if you had the power to dream at night any dream you wanted to dream, and you would of course be able to alter your time sense and say slip 75 years of subjective time into 8 hours of sleep. And you would naturally as you began on this adventure of dreams you would fulfill all your wishes. You would have every kind of pleasure you could conceive. Love affairs, banquets, dancing girls, wonderful journeys, gardens, music beyond belief. And then after a couple of months of this sort of thing at 75 years a night, you’d be getting a little of a taste for something different. You would move over to a sort of adventurers’ dimension, where there were certain dangers involved and the thrill of dealing with things and you could rescue princesses from dragons, go on wonderful journeys, make wonderful explosions and blow them up - eventually get in contests with enemies. And after you’d done that for some time you’d think up a new wrinkle - to forget that you were dreaming so that you would think it was all for real and to be anxious about it because it would be so great when you woke up. And then you would say well, like children that dare each other on things, how far out could you get? What could you take? What dimension of being lost, of abandonment of your power, what dimension of that could you stand? You would ask yourself because you would know that you would eventually wake up. Then you would get more and more adventurous. Finally you would dream…where you are now. You would dream the dream of living the life of you are actually living today.

Alan Watts

What would I do? I guess I would dream of traveling the world, with a person I love, with a camera to capture some of the things I’ve seen and a pen to write down some of the things I’ve thought.

Exploration is in our nature. We began as wanderers, and we are wanderers still. We have lingered long enough on the shores of the cosmic ocean. We are ready at last to set sail for the stars.

Carl Sagan

I began as a wanderer, and I am a wanderer still.

The Magic Dust of Cryptography

Fri, 17 Aug 2018 00:00:00 +0000

Imagine you have a hammer — a magical hammer — which can smash anything into pieces with one stroke. Not only that, this hammer can completely pulverize everything it touches into a fine gray dust.

Further imagine that there was a magic potion, one drop of which will turn the heap of dust back into the item you smashed.

This leads to some interesting questions.

Suppose you want to visit a country and you want to bring your favorite pair of pajama pants with you. The only problem, however, is that pants are illegal in this country. Maybe it’s a weird country, or maybe that’s the reason why you want to go there in the first place. Either way, I don’t judge.

Now, remember that you are in the possession of this magical hammer. You use it on your pajama pants, and *poof*, you have a tiny bag of gray dust which you can put in your pocket. The pocket of your jacket, of course, because you will be asked to leave all your pants at the border!

Where exactly are the pajama pants now? In the dust? In the potion? Do they currently exist? Does the concept of “your pajama pants” even make sense, if all you have is indistinguishable gray dust and a tiny drop of a magic potion? What if you would only need a drop of water, and speak some magic words, to turn the dust back into pajama pants? What if the dust was ubiquitous, everywhere on earth?

We, as a global society, are currently in the process of moving from the physical realm of things to the digital realm of information. We are quickly moving towards the fantastical world of no-pants land, and we will have to update our current conceptions of things if we want to stay sane.

Many things which used to be on pieces of paper are now digital: your train ticket, your boarding pass, tickets to a concert, debit cards, credit cards — all of these already moved from being printed on paper to a bunch of zeros and ones, decoupled from the physical realm we are so used to.

Even those pieces of paper which encode value itself are slowly but surely moved to the purely digital realm. A rising number of people are willing to convert their hard-earned paper money into bitcoin, leaving the world of physical money behind completely.

Over time, more and more valuable pieces of paper will be eaten up by this digitalization. Soon your driver’s license, your passport, your birth certificate and other documents will be digital.

Why is this a big deal? Digital information is quite different from physical artifacts. It can be easily scrambled, taken apart, and put together again. It has completely novel characteristics compared to the physical stuff we are so used to. It can be duplicated perfectly, checked for authenticity instantly, and hidden in plain sight. Information is independent of a physical substrate and thus can take virtually infinite forms.

'Jefferson would have been all about crypto.'

What the full implications of this digitization will be is impossible to tell. We are not accustomed to this world of information: devoid of physical form, touch, and smell.

Remember the tale of no-pants-land? Let’s return to this weird and wonderful world, but with a twist: your pajama pants are now your passport.

Let’s say you have a properly encrypted digital passport and a decryption key of sufficient length. You put the encrypted passport in one place and the key in another place. Where is the passport, exactly? A or B? Somewhere in between? Does it even exist? Does the question of “where” make sense in the first place?

What if you upload your encrypted passport to the cloud or a distributed storage system like ipfs? What if your encrypted passport was ubiquitous, everywhere on earth? What if you memorize the key as a mnemonic phrase? Is your passport now in your brain?

Does the concept of “your passport” even make sense, if all you have is access to the internet and some magic words?

Warning: The following section contains example private keys. Do not import any sample keys or send bitcoins to the associated addresses; you will lose your money.

Take Bitcoin as another example: you are no longer in possession of physical coins, or any physical artifact for that matter. No amount of calling these things coins can change that. Even hardware wallets don’t change that. You possess a piece of information, your private key, which allows you to spend your funds. Effectively, your private key is your money, which in turn is information. Thus, your money is pure information.

Never ever do that. Anyone who knows your private key can steal your funds.

A private key is just a bunch of random bits. It can be encoded as a bunch of zeros and ones:

0010111011001011101110101011010110001001101111010001011010100110001001110010101110101010101100000001101100000111000000011100010100100001000001010001011011100000111000111010101001111101000110111010100011011111000101111100000110100010110110000010101010111111

It could also be heads and tails, as pointed out by Andreas M. Antonopoulos in Mastering Bitcoin:

The bitcoin private key is just a number. You can pick your private keys randomly using just a coin, pencil, and paper: toss a coin 256 times and you have the binary digits of a random private key you can use in a bitcoin wallet.

Andreas M. Antonopoulos

The same information can be represented as a regular number:

21166349608056686127730669456997431530107294209230839699814678496870930066111

We can also use the hexadecimal system to represent this number, to keep things a bit shorter:

12e188aeb7c9aeb0eef7fac7c89e3b9b535a30b2ce8d6b74b706fa6f86b061e4

An even shorter representation would be the wallet import format:

5HxbsUekuCLjzLQujGb6QuzkDUMxQETQRgWjcJPx21hFsfDS3Fq

The same information can be encoded as a mnemonic code, resulting in these 24 words, which you could remember with a bit of practice:

concert, frozen, pull, battle, spend, fancy, orient, inside, quiz, submit, scare, mechanic, awake, mercy, lock, inside, language, tag, dash, control, borrow, hip, print, absorb

Or, if you’re Japanese:

かんち 、さべつ 、なにごと 、うくれれ 、ぴんち 、このよ 、てあみ 、せたい 、におい 、へいあん 、はいすい 、たそがれ 、いらい 、だっしゅつ 、そんみん 、せたい 、そうき 、ほこう 、きよう 、きうい 、うんどう 、しょもつ 、どようび 、あけがた

Of course, we can also encode this information as various images.

Private key as QR code

Private key encoded as hex colors

Same as above, but as one pixel per color

You can also be more creative and hide a bitcoin private key in a piece of art:

'TORCHED H34R7S' by YT (@coin_artist), a puzzle which hid 4.87 bitcoin in plain sight.

You get the idea.

Why is this a big deal? Our current way of doing things is adapted to the physical, not the digital world. Some laws and regulations which made sense previously might not be very useful in the abstract space of zeros and ones.

Central banks now have no way of stopping competition by just passing laws as they have always done. They are now up against a digital competitor that most likely cannot be brought under the physical world’s laws.

Saifedean Ammous, The Bitcoin Standard

Governments and corporations will continually try to outlaw certain kinds of information. It is likely that the last battle of the crypto wars hasn’t been fought yet, and yet it seems that it will be harder and harder for governments and companies to outlaw the use of these algorithms. After all, these mathematical magic tricks are themselves information, making them virtually unstoppable in the very same way as the information they manipulate.

As long as we aren’t under the rule of a worldwide totalitarian dictatorship, people will continue to exercise their freedom of speech to print encryption algorithms on t-shirts, design flags to distribute cryptographic keys, and sing songs containing illegal information.

Free Speech Flag by John Marcotte.

Due to the nature of information discussed above, outlawing any information leads to absurd consequences. Since information can be encoded in a myriad of ways, banning information leads to illegal numbers and other absurdities.

Any piece of digital information is representable as a number; consequently, if communicating a specific set of information is illegal in some way, then the number may be illegal as well.”

Wikipedia contributors, Illegal number (this version)

You might think that the tale of no-pants land featuring your favorite pajamas is silly, but we are already living in this world — fairy tale or not.

Let’s pick a specific example: When crossing U.S. borders with a big bag of money, you are required by law to declare how much money you have on you if it is more than $10,000:

"[...] if a person or persons traveling together and filing a joint declaration (CBP Form 6059-B) have $10,000 or more in currency or negotiable monetary instruments, they must fill out a "Report of International Transportation of Currency and Monetary Instruments" FinCEN 105 (former CF 4790)."

This is easily enforceable if you bring an actual bag of money with you. Let’s assume you have more than $10,000 in bitcoin. Where exactly is your money? Is it in the blockchain, i.e. everywhere? Is your money your private key? What if your private key was on a small device? What if you bring it with you in the form of just a couple of words on a piece of paper? What if it was a QR code tattooed inside your lips? What if you had a billion dollars stored in your brain? Would you have to declare these words in your brain?

That’s the tricky thing about information: it isn’t a thing. It transcends the physical realm.

These alien concepts are slowly but surely creeping into our daily lives, changing the power balance of society as they get understood and adopted by more and more people.

Like all tools, cryptography is neither all good nor all bad. If used and understood properly, it can be a liberating force. It can enable people to safely speak out and help disseminate information where it would otherwise be censored. It can guarantee freedom of speech and anonymity. It can also enable unstoppable crime, lead to accidental loss of data, and enable new forms of blackmail and extortion. If abused by tyrants, it can be a force of oppression. Despite all this, we should neither fear nor dismiss these technologies. We should strive to understand them.

We are already living in a world where both a totalitarian techno-panopticon and an anarcho-capitalist system dreamed up by cypherpunks is a reality.

Computers turned the abstract world of mathematics into tangible machines which interact with the world. The Internet connected these machines creating a global, borderless network. Cryptography and decentralization are making information exchange on this network unstoppable. What will happen if more and more things will become pure information? What are the consequences of unbreakable and censorship-resistant codes?

The code for a 3D-printed gun in book form.

We are entering a new era. An era where information can be put in digital safes which can’t be opened by force. An era where you can transfer value globally and near-instantly without anyone’s permission. An era where physical artifacts can be downloaded and printed for near-zero marginal cost. An era where world-changing inventions can be made by unknown entities. An era where you can turn anything into magical cryptographic dust and all you have to do to turn it into something meaningful again is to speak some magic words.

Addendum: The xkcd comics used are from issue 504 and 1553. Wikipedia has a great article on the Free Speech Flag. The 3d-printed gun above is called The Liberator, ~~the code of which can be bought as a book on Amazon~~.

Update: The book was removed from Amazon. It is now banned from the platform for “containing illegal content.” (1, 2)

Bitcoin's Energy Consumption

Sun, 10 Jun 2018 00:00:00 +0000

You might have heard that Bitcoin wastes a tremendous amount of energy. You might also have heard that Bitcoin will use half a percent of the world’s electric energy by the end of the year, the computations used for mining don’t do anything useful, and if the current rate of growth continues it will suck up all the energy and we are all going to die.

I don’t want to dispute the numbers or compare Bitcoin’s energy usage to the current banking system. I simply want to offer a shift in perspective.

Bitcoin is Offensive

Bitcoin is a global, permission-less, censorship-resistant network. Its nature is inherently offensive. It offends governments, bankers, and central authorities alike. Hell, offending banks was the whole point of this experiment in the first place.

At first glance, Bitcoin is the worst database ever devised by mankind. In addition to being seemingly inefficient and slow, it is eating up computational resources at a mad pace and consumes as much energy as a small country.

In comparison to modern distributed databases, blockchains are slow, ponderous, unnecessarily redundant and overly paranoid.”

Dhruv Bansal

As Nick Szabo so succinctly put it: “Bitcoin offends the sensibilities of resource-conscious and performance-measure-maximizing engineers and businessmen alike.” It also offends our globally shared understanding that wasting energy is bad, and energy-efficiency is always good.

According to a recent paper “the Bitcoin network can be estimated to consume at least 2.55 gigawatts of electricity currently, and potentially 7.67 gigawatts in the future, making it comparable with countries such as Ireland (3.1 gigawatts) and Austria (8.2 gigawatts).”

It’s easy to be concerned, outraged or offended. “Did you know Bitcoin uses as much energy as Austria? Baby cows are dying because of Bitcoin!”

What-what the hell is a gigawatt?

To understand why all these gigawatts are necessary for the Bitcoin network to function properly and securely, we will have to take a closer look at the nuances of mining.

Mining Blocks and Coins

The name “mining” stems from the proposition that bitcoin has more in common with gold and other precious metals than paper money. Satoshi made this clear in one of his posts.

In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes.”

Satoshi Nakamoto

Hence bitcoins are not printed, they are mined. Even though we talk about “mining bitcoins” all the time, keep in mind that it isn’t bitcoins which are mined. Blocks are mined, and miners are currently rewarded with new bitcoins if they find a valid block. Miners are rewarded because finding new blocks is inherently difficult. The system is set up in a way that the difficulty of finding a new block is adjusted automatically so that a new block is found every 10 minutes on average. Differentiating between “mining bitcoins” and “mining blocks” helps to point out a couple of things:

First, that the rate at which bitcoins are mined is decoupled from Bitcoin’s energy use. If everyone would decide to double the energy spent on mining, the number of bitcoins mined would not double as a consequence. The rate of supply is fixed, no matter how much energy you choose to expend for mining.

Second, that miners do a lot more than bringing new bitcoins into existence: maintaining the security and continuity of the network, confirming transactions, and signaling their support or rejection of network changes, to name a few. Not all of these require an excessive amount of energy, which is one of the reasons why running a full node is important.

Third, that mining is not a fixed process. Both the mining reward and the mining difficulty are dynamic and thus will necessarily change over time.

Fourth, that mining is supposed to cost a lot of energy. It is computationally expensive by design, which is why Satoshi chose to reward people extra for expending this energy. It is the main ingredient of the Nakamoto Consensus. It is the work in proof-of-work. It is absolutely essential.

Without a closer look at the mining process, it is easy to confuse the energy-intensive process of finding valid blocks with “finding new bitcoins”. From this perspective, it seems like all this electrical energy is transmuted into new bitcoins.

This is wrong.

The energy expended acts as a barrier which protects the public ledger. The creation of new bitcoins is just a side-effect.

Cryptographic Walls

Until very recently, securing something meant building a thick wall around whatever is deemed valuable. We all know how to do this, and we all agree that this is a sensible thing to do.

The new world of cryptocurrencies is unintuitive and weird. There are no physical walls to protect our money, no doors to access our vaults. Bitcoin’s public ledger is secured by its collective hashing power: the sum of all energy expended to do the work in its proof-of-work chain.

Thus, we can think of Bitcoin’s energy usage like a giant wall — a sort of electrical force-field — which secures all bitcoin balances of all users, now, and in the future.

It is hard to say how much energy has to be expended building these cryptographic walls. Financial systems are critical infrastructure, which is why most engineers in this space rightfully argue that security and stability are paramount. If Bitcoin will be the money of the future, it better be prepared to withstand high-impact, low-probability events.

How thick will these cryptographic walls need to be? Only time will tell. If Bitcoin is able to survive coordinated attacks by multiple state-level attackers, the walls were thick enough.

The End of Mining New Bitcoins

Bootstrapping a new network is difficult. It’s like trying to convince everyone to buy a fax machine if you are the only guy in the world with a fax machine. It’s really, really hard. As outlined above, Satoshi solved this problem by adding a block reward mechanism, which acts as (a) the controlled currency supply of Bitcoin and (b) an incentive for people to participate in the network to expand and secure the public ledger.

Expending energy is essential to provide security for this new financial network.

The current phase of “mining bitcoins”, where miners are incentivized with a high reward, is a clever way to get the network started. In other words: everyone who is greedily mining bitcoins today is helping to bootstrap this new financial system, whether they realize it or not.

John Nash commenting on the game theoretical aspect of Satoshi's invention.

As mentioned above, Bitcoin’s mining difficulty adjusts automatically, leading to a dynamic, self-correcting system. If mining — for whatever reason — gets more expensive, fewer people will mine at a profit, resulting in fewer people mining, lowering the mining difficulty. This, in turn, will make mining easier again and thus cheaper, which will incentivize more people to mine.

Over time, the financial incentive of running a mining operation will change. It follows that Bitcoin’s energy consumption will change as well. The reason why change is inevitable is Bitcoin’s block reward function which ensures a controlled, limited supply.

The block reward is halving every 210.000 blocks and will eventually reach zero, after 34 halvings. After the last of these halvings, miners will be left with transaction fees as the only financial reward for mining a new block.

In other words: The “mining of new bitcoins” will eventually stop. The mining of valid blocks will continue after that.

In Bitcoin, code truly is law.

One could argue that we are currently in the bitcoin equivalent of the Gold Rush, where the reward for mining as well as the future projected reward far outstrips the investment and energy costs. While it is hard to estimate how much security is enough security, a case could be made that the Bitcoin network is currently “hypersecured” as a side-effect of this Gold Rush.

Bitcoin's controlled supply and block reward over time.

We are still in the early phases of Bitcoin’s block reward phase, as the above graph shows.

Whether the adaption of bitcoin as a currency will be slow and steady, or exponential and parabolic, a continued exponential growth of energy consumption is very questionable. I would argue that excessive growth will give way to a somewhat sensible balance between security and energy consumption as the block reward approaches zero. Depending on the future value of bitcoin and the willingness of people to pay transaction fees, this balance might be leaning more towards security or more towards conservative use of energy.

Modern Blocks of Marble

Once you wrap your head around proof-of-work, it becomes more and more clear that the energy consumption of the Bitcoin network is not a bug, it’s a feature. As far as we know, you can’t cheat the laws of thermodynamics. Given that we don’t have any world-shattering breakthroughs in physics, mathematics and/or quantum computing, expending energy is the only way to flip bits, and flipping bits is the only way to mine new blocks.

Unfortunately, we don’t have an intuitive understanding of this new cryptographic world (yet). Fully grasping the importance of proof-of-work requires a deep-dive into a multitude of topics. We lack concise, easy, elegant explanations and metaphors. Hugo Nguyen did a great job explaining how proof-of-work links the abstract, digital world of bitcoin to our physical world:

By attaching energy to a block, we give it “form”, allowing it to have real weight & consequences in the physical world.”

Hugo Nguyen

Proof-of-work is essentially a mechanism to easily check the truthfulness of the statement “I worked really hard to create this thing”. From that perspective, our new and fancy computational blocks are a bit like blocks of marble, and proof-of-work is a bit like looking at a beautiful marble statue. It is immediately obvious that a lot of work went into creating the statue. Cheating is extremely hard, because creating such a glorious statue without actually doing the work is pretty much impossible. You can’t throw a block of marble against a wall and everything which is not David will fall off. It’s not impossible, but it is very, very, very unlikely. Instead, you have to chisel away at the marble, and you have to do it properly and with care. One might argue that this is one of the reasons why great artworks are so valuable: a lot of thought, care and work was expended to create them.

Oldschool proof-of-work by Michelangelo. Photo by Jörg Bittner Unna

It is similarly unlikely to find valid blocks without actually doing the work. Like an ugly half-haphazardly chiseled statue, an invalid block can be simply thrown away. When you see a valid block, however, you immediately know a lot of work went into it.

In both cases, the artifacts themselves, the statue and the valid block, are in itself the proof of work.

My point is that understanding the nature of proof-of-work and the incentives of mining valid blocks, as well as the security properties and thus the value of proof-of-work, might help to shift the perspective from “energy wasted” to “energy used for creating something valuable”. Most people value beautiful marble statues. A rising number of people value a chain of valid blocks.

Security Through Purity

Another feature disguised as a bug is the randomness of bitcoin’s proof-of-work. A common suggestion for improvement is that we could use all this electricity to do something else, something truly useful, like finding prime numbers or compute protein foldings, in addition to securing the network.

Again, this objection to Bitcoin’s proof-of-work algorithm is rooted in the assumption that finding valid blocks is inherently useless. It is not.

While introducing a secondary reward for doing the work might seem like a good idea, it actually introduces a security risk.

The problem with doing something else — something that other people might consider useful — is that that splits the reward. It means that miners have two reasons for which they are mining.

Andreas M. Antonopoulos

Splitting the reward can lead to a situation where “it’s more worthwhile to do the secondary function that it is to do the primary function”. Bitcoin will never have this problem. Bitcoin guarantees its security by the purity of its proof-of-work algorithm.

If someone figures out a more energy-efficient way to secure an open, decentralized, censorship-resistant, permission- and trustless network for value exchange — without compromising one of these qualities — this hypothetical future network will eventually dethrone Bitcoin, solving this supposed energy problem. And no, proof-of-stake is probably not the answer.

In the future, we might find something which is even more suited to be an anchor for truth than energy. Until we do, we should stick to something we are extremely confident in: the laws of thermodynamics; the energy required to do the work in proof-of-work.

Conclusion

I hope to have planted the seed for a shift in perspective: that spending energy on proof-of-work is not a waste, but a worthwhile endeavor.

Understanding mining and proof-of-work in more detail might help to convince some of Bitcoin’s critics and shift the perspective from “inefficient and wasteful” to “secure and censorship-resistant”. Pointing out these nuances might also be helpful to understand that Bitcoin’s energy consumption most strongly correlates with the network’s security, and not with the adoption, usage, or utility of bitcoin. Even if the utility of the network and the price of bitcoin continues to increase exponentially, the energy consumption does not necessarily need to follow the same exponential trend. Gaining a better understanding of the Bitcoin network might also help to understand where other solutions fall short.

Satoshi’s genius was to combine a bunch of clever tricks into a new economic game which creates a digital, scarce artifact, without central issuance. This artifact is backed by computation, and computation requires energy.

The current economic game is a game of walls and vaults, closed systems and centralized power. The new economic game is a game of hashes and blocks, public keys and private keys, based on mathematical proofs and physical reality. A game without gatekeepers, without central authorities, without censorship or discrimination.

The old rules have led to a system where money is valuable “because I say so”, leading to magic tricks like fractional reserve banking, inflation to stimulate excessive consumption, and even hyperinflation because the temptation to print ever more money is simply irresistible.

The new rules might not be easy to understand. They might, however, lead to a new financial reality: a new economy based on sound money. We will all have to adapt to these rules and become familiar with the nuances of this new game. And we will have to come to terms with the fact that a finite resource has to be used to secure this new, decentralized economy. In the case of Bitcoin, this resource is energy.

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