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Why does Bitcoin Fascinate me?

The mining-to-trusted-ledger feedback loop

The network was bootstrapped

The Bitcoin network was bootstrapped with a few hobbyist miners and the sheer novelty of transacting on a ledger with no central authority. As transactions continued to accumulate, people assigned more value to Bitcoins and more miners joined the network.

A virtuous cycle

As more energy is poured into mining, the integrity of the ledger strengthens. As the integrity of the ledger strengthens, more people are compelled to trust the Bitcoin ledger.

Bitcoin is the best notary

People get notarized documents for legal, bureaucratic purposes. Recall, the purpose of notarizing documents is to verify their legitimacy and authenticity. We establish this trust through designating certain individuals as capable notaries and by recognizing their ink stamp as a mark they verified the respective document. Clearly, this is easily game-able and only acceptable for bureaucratic purposes.

In more adversarial scenarios where verifying message authenticity matters, such as public health warnings, validating wartime communication, whistle-blowing, etc. cryptography provides the necessary tools.

Public-key cryptography allows us to verify the authenticity of messages via broadcasting a public key in advance of communicating and then attaching signatures to subsequently generated messages that prove the messages are authentic. The major vulnerability, however, is that the original public key broadcast can be corrupted or spoofed.

Enter Bitcoin. One may publish data on the Bitcoin ledger that verifies my public key, and issue updates to it in a tamper-resistant way.

I’m not trusting any single party to maintain the Bitcoin ledger’s integrity. In reality, there’s an entire army of skin-in-the-game miners, full node operators and Bitcoin holders that do it for me! I’m trusting an economic system rather than a group of people. The mistake people make when trying to create “more efficient” blockchains is that in their definition of “efficient”, things are faster and cost less. In reality, efficiency for a decentralized ledger is tamper resistance.

The Properties of Bitcoin make it the "best" money

What is money, other than an entry on a ledger? What makes the United States Dollar (USD) such a great store of value? I think it comes down to the USD having ledgers that are relatively trustworthy, and that the total supply of USD is reasonably controlled. With all of that said, Bitcoin is a marginally better money by those measures.

Ledger integrity

One could conceptually view the USD ledger as tiered. Tiered in that nation-states' central banks maintain a ledger for balances between one another. Below that, each federal reserve bank is responsible for banks in its jurisdiction. Below that, various financial services operate as mini-ledgers among their own users. Most levels of this tier are pretty honest and trustworthy but abuse of power certainly occurs. A famous example of this was Wells Fargo charging erroneous fees. Another example is nation-states coercing commercial banks into garnishing wages from individuals.

Overall, the tiered USD ledger is fairly trustworthy.

The top-level of Bitcoin and its second tier, the lightning network, are arguably more trustworthy though. Primarily because an end-user's wealth may never be moved without their explicit permission.

With that said, because USD may be seized by various actors on each level, the USD is fitted with a strong tool against fraud; transaction reversal. Not to say Bitcoin can't evolve tiers that have chargeback capabilities; it's certainly plausble and likely. This wouldn't require changing fundamental properties of the Bitcoin network. It would work exactly the way it does with USD. Explicitly, an ecosystem of payment processors could emerge for Bitcoin, the same way they've emerged for USD.

Supply-controlled

In each tier of the USD ledger, certain power brokers have the ability to create more USD. This is the case with nearly ever nation-state issued currency. The obvious problem is that those that can't issue currency are doomed to lose buying power over time. Bitcoin's supply is capped and therefore immune from this.

What more is money than a store of value? What more is a store of value than an entry on a trustworthy ledger?

The free market for money is exciting

Simply put, one of the highest-stakes competitions out there is that of "what is the hardest money". Nation-states wage war over it, corporations hedge against potential winners and individuals' fortunes are made and lost over this competition. I think Bitcoin is a pretty great contender.

Published 1/26/2020