Hello professor!

An epistle to academics Re: bitcoin

March 23, 2023

 

I wrote this essay as an attempt to address various critiques and misunderstandings of Bitcoin and blockchain technology I have heard from scholars during my undergraduate studies in international business. Thus, I am proposing an alternative view, beyond mere buzz and hype.

TL: DR

Bitcoin is a tool for the economic empowerment of 8 billion people. Bitcoin is time. Bitcoin is digital scarcity. It is number zero. It is Venice. It is the second coming of Christ. Finally, it is hope for a better future. There is no second best.

You may disparage it, call it a cult, or pretend it does not exist. Its presence is manifesting itself every ten minutes as new transactions are being appended to the chain in perpetual motion.

Tick tock, next block.

PROLOGUE

As academic experts, I know you are able to do your own research and change your stance when faced with overwhelming evidence against your predispositions. Therefore, I will try to provide a basis for this exploration and introduce you to the basic principles on which this emergent community rests. In the footnotes as well as at the end, I will append sources which I find to be the most valuable for understanding the phenomenon from various perspectives. I highly recommend checking them out with an open mind and not let bias affect your perception of what might be the largest paradigm shift in history.

ARGUMENT #1

Bitcoin, not crypto.

Firstly, you are making a very common mistake of conflating Bitcoin with “crypto”[1]. The two, however, are completely antithetical. Bitcoin is a truly decentralized monetary protocol that has functioned for well over a decade while maintaining 99.9% uptime. It had no pre-mine of coins, ICO, or foundation behind it. It has been developed anonymously and evolved organically throughout the years without any successful hard forks, i.e., major changes to the structure and functioning of the network. The Bitcoin network has only witnessed optional protocol upgrades which increased its security and efficiency, such as the most recent TapRoot, or its predecessor SegWit; however, Bitcoin’s core software is backwards compatible. Everyone who runs a Bitcoin node can still run the original copy of the blockchain and participate in the network.

Proof of Work

Bitcoin currently represents 99% of all Proof-of-Work hash power in the “crypto” ecosystem and is secured by the most powerful computing network in the world[2]. Proof-of-Work is a critical part of the blockchain because it acts as a bridge between the physical and digital world, transforming electricity into cryptographic hashes and manifesting immutable consensus parameters on the protocol. There is no working blockchain without Proof-of-Work. There is no other use case for blockchain technology apart from creating an immutable, decentralized, and transparent ledger of transactions with its native currency. It is the only roundabout solution to the omnipresent Byzantine general’s problem of trusting an intermediary. Satoshi Nakamoto created the protocol and timestamped its genesis block to prove that there were no earlier blocks. Since its inception, anyone could participate in the network. The anonymity of its creator ensures there is no counterparty risk that could control or endanger Bitcoin’s existence and it was further ensured by the fact that its creator never spent his coins and left the network after working on it for a year to give room to its organic evolution. This was arguably the highest moral act of any historic figure and crucial to creating an ethical monetary system. Since its inception, Bitcoin has operated exactly as intended, producing a block of transactions every 10 minutes without anyone being able to compromise its Proof-of-Work mechanism.

Crypto

No other “crypto” has any of these inherent properties. All of them are deemed to be unregistered digital securities[3]with counterparty risk because they pass the Howey test. Bitcoin is the only digital, absolutely scarce commodity, which means it is completely neutral[4]. You cannot sue it, stop it, or change it without a significant investment beyond the capability of any organization or a group thereof. It was designed to solve a simple double-spend problem and protect its users against hostile actors. Its incentive structure awards honest participants who work to the benefit of its ecosystem and punishes the attackers[5]. Unlike any other crypto token, Bitcoin’s software cannot be altered by a small group of developers, because it requires the network consensus of nodes and miners to change its code[6]. Such attempts failed miserably, most recently during the 2017 Blocksize War.

ARGUMENT #2

Cyber-Manhattan

Secondly, I have heard you claim on numerous occasions that Bitcoin has no use case and is too slow to transact, which is yet another misconception. Bitcoin’s base layer protocol is a foundation. Think of it like a block of granite in Manhattan[7]. It is there to last, and hardly to be moved. Its role is to provide a sound foundation for the erection of a digital economy. 1. Any monetary energy individuals choose to store there is stored for all eternity. This is achieved by its security protocol and its deflationary monetary policy. Because there are only 21 million coins and no one can change that, your share of those coins will remain intact forever. This is the essential part of a perfect monetary medium because it does not erode purchasing power, while still allowing these coins to be divided into infinitesimal units to transact with. Hence the equation: 1BTC = 1BTC.

The problem with the base layer is, however, that it is extremely slow, producing approximately 12,000 transactions per hour. The transaction fees will likely keep increasing with time, because the miner subsidies get cut in half every 4 years until they are fully terminated around the year 2140.

There’s Layers to this Game.

So, to understand the solution, we must apply a layered approach. Once you have the granite block on which you can store your value, you can start building an economy. In 2018, The Bitcoin Lightning Network white paper was launched[8]. It perfected a solution which was already discussed by Satoshi Nakamoto a decade earlier to create a protocol for payment channels, wherein bitcoin transactions could run a million times faster at near zero cost by sacrificing some of the security.

Struck by Lightning

The Lightning protocol proved to be a perfect solution to the liquidity problem and has since grew exponentially and seems to have near-infinite scaling potential. It allows users to send instant, low value transactions globally at any time, for effectively no cost. 2. The ultimate use case of this protocol is that it allows Bitcoin to bank the unbanked people of the world, which amount to nearly 2 billion adults. Expats can finally send remittances to their families in the developing world without incurring excessive Western Union fees. Furthermore, Western Union usually takes a month to send the money and its subsidiaries are miles away from people’s homes. The Lightning Network allows users to send thousands of dollars on a Sunday afternoon anywhere over IP for a nickel.

After the second layer, which is akin to the buildings on Manhattan, there is room to create a native economy within those buildings. Centralized businesses can be built on top of those two layers to offer any other service and utility in the ecosystem, such as custodial services, exchanges, wallet applications, hardware storage devices, communication protocols like Nostr[9], etc. This is how an organic monetary system that is adapted to the digital age evolves into a perfect Darwinian organism.

Social Media Housekeeping

To add a third use case, besides the ultimate store of economic energy and integration of the global economy into a single payments system which is faster, cheaper, and better, we need to look at the digital economy. Internet has been lacking a native currency for decades and many attempts have failed. Because of that, intermediaries had to oversee transactions to ensure there are no double spends and theft. What this entailed was the emergence of expensive and redundant organizations which performed their job sub-optimally. Internet became pervaded with scammers, bots, DDoS attacks and hackers. Social media platforms were the main victims of that. Try using any social media app today and witness the saturation of bots with fake giveaways and scams, creating fake followers and trashing your account. The problem is the absence of physical cost, or skin in the game, in the digital domain. There is zero cost for malicious behavior but infinite upside. 3. Bitcoin and the Lightning Network are the solution to this problem because they can be implemented into any digital domain and clean the cyberspace of malicious activity. How? By introducing monetary costs for posting, creating accounts, sending messages, and punishing the malicious actors. Lightning allows you to automate these transactions and make them instant, irreversible, and low cost. This way, Twitter or other platforms can monetize malicious behavior by introducing monetary deposits for account authentication. Orange verification checks are a promising solution.

Usecaselessness

With this, I have postulated three revolutionary use cases for Bitcoin, but I could go on forever, because the implications of creating an immutable monetary standard outside the control of any political or other institution are infinite. We finally have a solution for the age-old problem even alchemists attempted to solve of creating “artificial gold” – a substance which would be better than gold in its monetary properties. It could only be created after the discovery of the digital realm. The fact that it was created on the free market despite all odds and attempts at destroying it speaks for itself. What has not killed it, made it stronger. “Antifragility” means that a system absorbs the energy of its attackers and reinforces itself, like a black hole. This was evident in China’s attempt to destroy Bitcoin miners. Bitcoin’s hash rate has only exponentially increased since then along with its security.

ARGUMENT #3

Dante and ChatGPT

I reserved the best for last. As an introduction to this final argument, I have sought the help of the “Oracle”, a name I tend to ascribe to ChatGPT, which seems to be getting increasingly omniscient with each input of data it receives. I asked it where would Dante Alighieri place those who indulge in gambling within his Divine Comedy. Here’s the answer I received:

With that, I would like to address the final commonly heard critique, namely that Bitcoin is akin to gambling.

I would turn this statement on its head and state that Bitcoin is the only relative certainty, everything else is uncertain. The explanation is the following:

  • Its supply schedule is set in stone, and we know exactly how many coins will be issued following a predictable schedule. This is achieved by leveraging the strengths of mathematics on which the whole system is based. Here is its monetary policy:
  • The history of transactions is transparent and verifiable all the way back to the genesis block. The famous mantra within the Bitcoin community is “Do not trust, verify”, which is contrary to the traditional monetary system that depends on people’s trust in the politicians running it.
  • For 14 years, no one has lost money on a 4-year time horizon by acquiring and holding Bitcoin. Its price has appreciated by 100% annually and it continues to monetize, even with all the financial crises, pandemic, and continual pushbacks from the authorities.
  • The most certain thing for the last 14 years has been encapsulated in another famous Bitcoin slogan – “Tick tock, next block”. Despite massive economic calamity during and after the covid-19 pandemic and the ensuing financial collapse of 2023, Bitcoin continued to produce a block of transactions every 10 minutes and securing its users’ wealth.

It is disingenuous to say Bitcoin is akin to gambling, when literally the whole world needs to speculate on various assets to preserve their purchasing power which is perpetually diminishing if held in their domestic currencies that are continuously being devalued. The problem with current fiat money is that people need to earn it twice – initially by working, and later when they need to preserve the value of their labor, which is being eroded by inflationary monetary policy. To this end, they invest it in speculative assets to try and beat the inflation rate, only to end up either in the same place or worse-off because they compete against professional investors. Average worker has become a part-time investor trying to preserve their wealth instead of focusing on being productive with their time[10]. Bitcoin offers the ultimate alternative, because it protects people’s purchasing power both from theft through confiscation, as well as monetary inflation[11].

Gamblers Unmasked

ICOs, NFTs, Web3 and the Metaverse are all examples of crowdfunding and marketing campaigns by developers of “crypto” projects. This inevitably designates them as unregistered digital securities because they all pass the Howey test. Circle, Terra Luna, FTX, Mount Gox are examples of the ultimate destiny awaiting such snake oil salesmen shilling unregistered digital securities disguised as decentralized assets. Investing money in such projects means gambling your luck about which of these pump and dump schemes will pump and which will be dumped by its majority holders of (mostly)pre-mined tokens.

Furthermore, another vivid example of gamblers are central bankers who capriciously concoct our monetary policy and politicians who foolishly try to steer the profound and overcomplex machine that is our economy. Change the interest rate there, print money here, lend it to this and that lobbyist and tax the prudent farmers. Make sure to keep coming up with excuses for why printing money is good for stimulating economic growth and why you should be in charge of it. Pretend that gambling with people’s money is not an addiction which gives you a better kick than any other substance. This is their modus operandi.

Socialism is untenable.

The economy is an organic mechanism which consists of billions of acting individuals who make economic decisions. As long as people possess free will, there is no mathematical model which could tell central planners how to direct resources and money to production processes better than those entrepreneurial individuals can do themselves. Bitcoin helps shine a light on this issue and exposes the inefficiency of centralized allocation of money. Constantly meddling in the money supply inflates market bubbles and causes business cycles, sending shockwaves of price volatility over the economy. Finally, it falsifies all prices and indicators because they have to be adjusted for the unmeasurable inflation rate. Fix the money, fix the world.

Measuring Economic Activity

I would like to offer an alternative perspective, viz., expressing all other assets in terms of Bitcoin’s 21,000,000 units, to see exactly why it is the only stable and predictable system. Because its supply is strictly limited, it represents the only closed value system out there and allows us to express the volatility of all other open systems in its units. When you express any open system in terms of a closed one, the value of the former continuously trends toward zero. Mathematically, this is akin to dividing any fixed number with infinity. What we derive from that is a trendline of various assets depreciating against Bitcoin’s fixed supply in a volatile manner. In other words, Bitcoin is demonetizing all assets (real estate, gold, stocks, bonds, currencies, etc.) whose value has been appreciating because people used them as a way to store their value outside of the dysfunctional fiat money. Thus, Bitcoin’s value either rises to infinity or collapses to zero. There is no middle option.

Here is a depiction[12]:

EPILOGUE

Instead of opposing and disparaging it, people need to start embracing Bitcoin as the only workable solution to the problem of corrupt fiat money, which is creating exorbitant differences between people and favoring the wealthy politicians, banksters, and businessmen at the expense of the poor. Bitcoin provides an alternative to the obsolete monetary system of the Industrial era and adapts it to the Information Age. It is the magical internet money, and it works exactly as intended[13]. Countries and corporations already began embracing it and the first movers will have a significant advantage in the forthcoming digital economy. El Salvador was the first country to adopt Bitcoin as legal tender and set a precedent for all other nation states to follow[14]. Their results are astonishing.

I have manifold reasons for being enthusiastic about Bitcoin. Foremost amongst them is returning power and freedom to the sovereign individual instead of the welfare state and finally exterminating the fiat parasite which has been plucking at our prosperity for the past century. Another reason is that it is creating a separate economy, full of opportunities and hope. Numerous e-businesses are emerging and providing valuable services to global users and equipping them with the universal digital monetary commodity that allows people to finally get out of debt slavery and save their money for future use, while still being able to send it anywhere cheaply and instantly. Last but not least, it reinstates morality that has been absent for a long time, which is evident in profound life changes that Bitcoiners experience once they fully adopt the idea.

P.S.

I hope my essay was not too long to read. I have tried to be as concise as I can considering the scale of the topic. Hopefully, it also made you reconsider your position and open to further exploration of this phenomenon. For this purpose, I have prepared a comprehensive list of books, white papers, articles, websites, and videos that I find most important for people starting to get their feet wet in the ocean of ideas that is Bitcoin.

Written by

Klemen K. Verstovšek

 

Sources:

Books:

  1. Ammous, S. (2018). The Bitcoin Standard: The Decentralized Alternative to Central Banking. John Wiley & Sons. Retrieved March 22 2023, from https://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=1738722
  2. Ammous, S. (2021). The Fiat Standard: The Debt Slavery Alternative to Human Civilization. Saif House 2021.

White papers:

  1. Poon, J., & Dryja, T. (2016). The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments. Retrieved March 22 2023, from

https://lightning.network/lightning-network-paper.pdf

  1. Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved March 22 2023, from

https://bitcoin.org/bitcoin.pdf

Presentations:

  1. Global Bitcoin Mining Data Review Q3 2022. Bitcoin Mining Council. Retrieved 26 March 2023, from https://bitcoinminingcouncil.com/wp-content/uploads/2022/10/2022.10.13-BMC-Presentation-Q3-22-Presentation.pdf

Articles:

  1. Dear Crypto & Fiat Bros—An open letter to the confused and dismissive. | dergigi.com. (n.d.). Retrieved 22 March 2023, from https://dergigi.com/2022/11/19/dear-crypto-fiat-bros/
  2. Dear Family, Dear Friends—A letter to all of you who still have no bitcoin. | dergigi.com. (n.d.). Retrieved 22 March 2023, from https://dergigi.com/2020/04/27/dear-family-dear-friends/
  3. Bitcoin Is Time | dergigi.com. (n.d.). Retrieved 22 March 2023, from https://dergigi.com/2021/01/14/bitcoin-is-time/
  4. Bitcoin’s Meme Wars. (2023, March 21). Dergigi.Com. https://dergigi.com/2023/03/21/bitcoin-s-meme-wars/
  5. Magic Internet Money—The Magical Origins of Bitcoin. (2021, November 2). Dergigi.Com. https://dergigi.com/2021/11/02/magic-internet-money/
  6. Breedlove, R. (2022, June 24). The Number Zero and Bitcoin. Medium. https://breedlove22.medium.com/the-number-zero-and-bitcoin-4c193336db5b
  7. Verstovšek, K. K. (2023, March 1). Bitcoin vs CBDC. Bitcoin Društvo Slovenije, Medium. https://bitcoindrustvoslovenije.medium.com/bitcoin-vs-cbdc-ce4cacafedad

*My own article in Slovene

Websites:

  1. WTF Happened In 1971? (n.d.). WTF Happened In 1971? Retrieved 22 March 2023, from https://wtfhappenedin1971.com/
  2. com. (n.d.). Retrieved 22 March 2023, from https://www.hope.com/en/websites
  3. Bitcoin Books. (n.d.). Bitcoin Resources. Retrieved 22 March 2023, from https://bitcoin-resources.com/books/
  4. Satoshi Nakamoto Institute. (n.d.). Retrieved 22 March 2023, from https://nakamotoinstitute.org/
  5. Nostr, a simple protocol for decentralizing social media that has a chance of working. (n.d.). Retrieved 22 March 2023, from https://nostr.com

Videos:

  1. The Saylor Series—YouTube. (n.d.). Retrieved 22 March 2023, from https://www.youtube.com/playlist?list=PL2jAZ0x9H0bQFY6wIbQfnrnIlqMcSHd6X
  2. Michael Saylor—Bitcoin VS Ethereum—YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/Of0Ojk9yVWE
  3. FYM News: Michael Saylor Explains Bitcoin on Tucker Carlson Today – full interview (720p) – YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/wdJFeSY8UVk
  4. BTC117: Bitcoin and the Start of the Information Era w/ Luke Broyles – YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/695SjcxoejY
  5. ‘Buying Bitcoin Now is Like Buying a Land in Manhattan 100 Year Ago’—Michael Saylor—YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/LTVhx2ouwXk
  6. El Salvador Becomes The First Country to Declare Bitcoin Legal Tender w/ Jack Mallers of Strike—YouTube. (n.d.). Retrieved 22 March 2023, from https://www.youtube.com/watch?v=_59hrgTiRJU
  7. Security vs. Commodity. And why #Bitcoin is the latter. Michael Saylor live @ BTC22 | with subtitles—YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/–zIMJcy8C4

Footnotes:

[1] Dear Crypto & Fiat Bros—An open letter to the confused and dismissive. | dergigi.com. (n.d.). Retrieved 22 March 2023, from https://dergigi.com/2022/11/19/dear-crypto-fiat-bros/

[2] Global Bitcoin Mining Data Review Q3 2022. Bitcoin Mining Council. Retrieved 26 March 2023, from https://bitcoinminingcouncil.com/wp-content/uploads/2022/10/2022.10.13-BMC-Presentation-Q3-22-Presentation.pdf

[3] SEC.gov | Kennedy and Crypto. (n.d.). Retrieved 26 March 2023, from https://www.sec.gov/news/speech/gensler-sec-speaks-090822

[4] Security vs. Commodity. And why #Bitcoin is the latter. Michael Saylor live @ BTC22 | with subtitles—YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/–zIMJcy8C4

[5] Michael Saylor—Bitcoin VS Ethereum—YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/Of0Ojk9yVWE

[6] Bitcoin’s Meme Wars. (2023, March 21). Dergigi.Com. https://dergigi.com/2023/03/21/bitcoin-s-meme-wars/

[7] ‘Buying Bitcoin Now is Like Buying a Land in Manhattan 100 Year Ago’—Michael Saylor—YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/LTVhx2ouwXk

[8] Poon, J., & Dryja, T. (2016). The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments. Retrieved March 22 2023 from

https://lightning.network/lightning-network-paper.pdf

[9] Nostr, a simple protocol for decentralizing social media that has a chance of working. (n.d.). Retrieved 22 March 2023, from https://nostr.com/

[10] Bitcoin Is Time | dergigi.com. (n.d.). Retrieved 22 March 2023, from https://dergigi.com/2021/01/14/bitcoin-is-time/

[11] Ammous S. (2021). The Fiat Standard: The Debt Slavery Alternative to Human Civilization. Saif House 2021.

[12] BTC117: Bitcoin and the Start of the Information Era w/ Luke Broyles – YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/695SjcxoejY

[13] Magic Internet Money—The Magical Origins of Bitcoin. (2021, November 2). Dergigi.Com. https://dergigi.com/2021/11/02/magic-internet-money/

[14] El Salvador Becomes The First Country to Declare Bitcoin Legal Tender w/ Jack Mallers of Strike—YouTube. (n.d.). Retrieved 22 March 2023, from https://www.youtube.com/watch?v=_59hrgTiRJU

Popularni produkti

Bitcoin in kripto varnost

Tangem Wallet 2.0 – Črna

64,99 76,99 
-8%

Bitcoin in kripto varnost

Blockstream JADE – Modra

65,99 
-5%

Bitcoin in kripto varnost

Trezor Safe 3 – Srebrna

80,99 
-8%

Bitcoin in kripto varnost

Blockstream JADE – Zelena

65,99 
-8%

Bitcoin in kripto varnost

Blockstream JADE – Oranžna

65,99 

Bitcoin in kripto varnost

BitBox02 Bitcoin-only-edition

139,99 

Bitcoin in kripto varnost

Ledger Nano S Plus – Črna

79,90 

Bitcoin in kripto varnost

Keystone 3 Pro

129,99 

MENI

INFORMACIJE

PRIJAVITE SE NA E-NOVICE

© 2023 Gemcom k.d. Vse pravice pridržane.