I love this approach to explaining Bitcoin. Very creative.
"In other words, the security model of Bitcoin lies in its openness coupled with the very human challenge of social consensus – NOT in encryption! This is hard for even technical people to get their heads around because all other technologies have traditionally relied on obfuscation. Because anyone can run it and anyone can change it, but changing equals self-selecting OFF the network, Bitcoin the protocol cannot be “hacked.”"
This is a really important notion that is ignored by the math nerds. The Byzantine General's Problem has a very simple solution - Every person participating in a system who has skin in the game, who is bought in, will fight to preserve it.
I do think that the size of nodes and the complexity of running them will be a problem in the future. It makes it so only those highly motivated to control the coin run nodes. No one is more highly motivated than State actors who stand lose a LOT from Bitcoin adoption. Bitcoin could theoretically be co-opted, similar to how the Tor network was compromised by State actors, by States standing up nodes and getting +50% of the consensus network.
But even then I'm not sure they would succeed. The State's first action would be to dilute and ruin the currency, so that if the OG Bitcoin was still there people would return to it.
All that to say, Bitcoin WILL face challenges, there will be calamitous events, but the underlying design of the system means it's the safe bet long-term no matter the present difficulties.
Thanks for all your hard work, it's greatly appreciated.
The only challenge to the bitcoin narrative you have outlined is that to btc as a method of payment. The more valuable it becomes the less it’ll be used as a form of payment. Why would I pay for sth with btc today when I think it’ll be worth $150k in 6,9,12 months?!
simple answer. As bitcoin becomes more valuable, it becomes more liquid, and the relative percentage increase becomes less significant.
people spend it TODAY while it’s growing double digit percentages each year (compounded).
In a decade, when it’s worth 100x what it is now, with perhaps single digit percentage increases in purchasing power, the incentive to use it increases.
BUT, unlike fiat, which constantly devalues, bitcoin will act as a beautiful savings mechanism and you will think TWICE before spending (which is healthy) - this in turn solves the blind consumerism that is so common in the world today.
Leaving aside the contradiction between something being both a savings and spending mechanism, you’re saying once its value stabilises then it could be used as a form of payment. Ok fair enough, that I can buy. Until then it’s akin to digital gold and it’s an investment/saving mechanism, so it doesn’t yet fulfill all the requirements of a currency.
Your #2 point is the disconnect. Spending and earning in a given currency is one thing. Btc is trying to be an asset for growth as well. That’s what it cannot do if it is to be used to spend.
To illustrate: we earn in USD, we spend in USD but USD itself is not an asset we use to grow our wealth. We use the USD to buy equities or bonds or gold or real estate or whatever other asset. USD is just the vehicle used to transact for assets which grow one’s wealth.
Btc cannot be both the vehicle one transacts in and invests in. If it will be used to spend, it will not be able to serve the function of asset that grows wealth for long term. (It may maintain or grow at a slow predictable 1,2,3% but that’s not wealth creation.). In reverse, if it will be used as an asset for growth, no one will want to spend it if it’s a growth vehicle compounding at 10 or 15% a year (which is what equities do so that’s not farfetched).
If I’m to read a bit beyond what you’ve written, I think your stance is the latter scenario (of btc as an asset) is not what you believe will happen. But I could be wrong and I’m trying to read between the lines as you didn’t address this dichotomy I’m highlighting head on.
Regardless of your stance, the take up of btc right now is mostly in the latter camp; people and institutions are getting in to it as an asset, not as a means of payments (or unit of account). That’s why things like diversification are highlighted, and ETFs are purchased (vs btc itself) and so on. For now the asset thesis is carrying the day. Maybe in the future that’ll change 🤷♂️
Ok so you believe in the distant future it’ll be a payment currency that retains its value but not necessarily the asset we invest in. If so, that’s reasonable enough. Coinbase and Robinhood are already getting tokenised equities going so I guess there will be other assets we will use btc to invest in, digitally and on chain.
I love this approach to explaining Bitcoin. Very creative.
"In other words, the security model of Bitcoin lies in its openness coupled with the very human challenge of social consensus – NOT in encryption! This is hard for even technical people to get their heads around because all other technologies have traditionally relied on obfuscation. Because anyone can run it and anyone can change it, but changing equals self-selecting OFF the network, Bitcoin the protocol cannot be “hacked.”"
This is a really important notion that is ignored by the math nerds. The Byzantine General's Problem has a very simple solution - Every person participating in a system who has skin in the game, who is bought in, will fight to preserve it.
I do think that the size of nodes and the complexity of running them will be a problem in the future. It makes it so only those highly motivated to control the coin run nodes. No one is more highly motivated than State actors who stand lose a LOT from Bitcoin adoption. Bitcoin could theoretically be co-opted, similar to how the Tor network was compromised by State actors, by States standing up nodes and getting +50% of the consensus network.
But even then I'm not sure they would succeed. The State's first action would be to dilute and ruin the currency, so that if the OG Bitcoin was still there people would return to it.
All that to say, Bitcoin WILL face challenges, there will be calamitous events, but the underlying design of the system means it's the safe bet long-term no matter the present difficulties.
Thanks for all your hard work, it's greatly appreciated.
What a fantastic article, well thought out and beautifuly written.
🤝
The Interregnum is what's on my mind. What it will look like and how to get through it.
Excellent work. Keep it up!
The only challenge to the bitcoin narrative you have outlined is that to btc as a method of payment. The more valuable it becomes the less it’ll be used as a form of payment. Why would I pay for sth with btc today when I think it’ll be worth $150k in 6,9,12 months?!
simple answer. As bitcoin becomes more valuable, it becomes more liquid, and the relative percentage increase becomes less significant.
people spend it TODAY while it’s growing double digit percentages each year (compounded).
In a decade, when it’s worth 100x what it is now, with perhaps single digit percentage increases in purchasing power, the incentive to use it increases.
BUT, unlike fiat, which constantly devalues, bitcoin will act as a beautiful savings mechanism and you will think TWICE before spending (which is healthy) - this in turn solves the blind consumerism that is so common in the world today.
So don’t worry. This is a feature. Not a bug
Leaving aside the contradiction between something being both a savings and spending mechanism, you’re saying once its value stabilises then it could be used as a form of payment. Ok fair enough, that I can buy. Until then it’s akin to digital gold and it’s an investment/saving mechanism, so it doesn’t yet fulfill all the requirements of a currency.
Money MUST perform 3 functions:
1. Store value
2. Exchange value (spending / earning)
3. Measure value (unit of account)
There is no contradiction in having both
Money should allow you to BOTH save AND spend.
Spending need NOT be incentivised with by devaluing the money.
Spending should be done when NEEDED, from your savings.
Your #2 point is the disconnect. Spending and earning in a given currency is one thing. Btc is trying to be an asset for growth as well. That’s what it cannot do if it is to be used to spend.
To illustrate: we earn in USD, we spend in USD but USD itself is not an asset we use to grow our wealth. We use the USD to buy equities or bonds or gold or real estate or whatever other asset. USD is just the vehicle used to transact for assets which grow one’s wealth.
Btc cannot be both the vehicle one transacts in and invests in. If it will be used to spend, it will not be able to serve the function of asset that grows wealth for long term. (It may maintain or grow at a slow predictable 1,2,3% but that’s not wealth creation.). In reverse, if it will be used as an asset for growth, no one will want to spend it if it’s a growth vehicle compounding at 10 or 15% a year (which is what equities do so that’s not farfetched).
If I’m to read a bit beyond what you’ve written, I think your stance is the latter scenario (of btc as an asset) is not what you believe will happen. But I could be wrong and I’m trying to read between the lines as you didn’t address this dichotomy I’m highlighting head on.
Regardless of your stance, the take up of btc right now is mostly in the latter camp; people and institutions are getting in to it as an asset, not as a means of payments (or unit of account). That’s why things like diversification are highlighted, and ETFs are purchased (vs btc itself) and so on. For now the asset thesis is carrying the day. Maybe in the future that’ll change 🤷♂️
You’re timeframe is too short
Zoom out 50/100 years.
Ok so you believe in the distant future it’ll be a payment currency that retains its value but not necessarily the asset we invest in. If so, that’s reasonable enough. Coinbase and Robinhood are already getting tokenised equities going so I guess there will be other assets we will use btc to invest in, digitally and on chain.
Great article, Aleksandr, thank you for taking the time to write it.