This property is why gold has been synonymous with sound money: it is money whose supply is guaranteed, thanks to the ironclad rules of physics and chemistry, to never be significantly increased p. 82

A closer look at the innovations of the pre-1914 world lends support to Huebner’s data. It is no exaggeration to say that our modern world was invented in the gold standard years preceding World War I. The twentieth century was the century that refined, improved, optimized, economized, and popularized the inventions of the nineteenth century. The wonders of the twentieth century’s improvements make it easy to forget that the actual inventions—the transformative world-changing innovations—almost all came in the golden era.

The majority of the technology we use in our modern life was invented in the nineteenth century, under the gold standard, financed with the ever-growing stock of capital accumulated by savers storing their wealth in a sound money and store of value which did not depre- ciate quickly.

he knowledge of economic conditions is by its very nature distributed and situated with the people concerned by their individual decisions.

Bitcoin represents the first truly digital solution to the problem of money, and in it we find a potential solution to the problems of salability, soundness, and sovereignty p.167

offering individuals sovereignty over money that is resistant to unexpected inflation while also being highly salable across space, scale, and time. Should Bitcoin continue to operate as it already has, all the previous technologies humans have employed as money—shells, salt, cattle, precious metals, and government paper—may appear quaint anachronisms in our modern world—abacuses next to our modern computers.

From the necessity of centralizing gold arose government money backed by gold, which was more salable in scale, but with it came gov- ernment expansion of the money supply and coercive control which eventually destroyed money’s soundness and sovereignty. Every step of the way, technological advances and realities shaped the monetary stan- dards that people employed, and the consequences to economies and society were enormous. Societies and individuals who chose a sound monetary standard, such as the Romans under Caesar, the Byzantines under Constantine, or Europeans under the gold standard, benefited immensely. Those who had unsound or technologically inferior money, such as Yap Islanders with the arrival of O’Keefe, West Africans using glass beads, or the Chinese on a silver standard in the nineteenth century, paid a heavy price.

The move toward digital payments was reducing the amount of sovereignty people have over their own money and leaving them subject to the whims of the third parties they had no choice but to trust.

Satoshi Nakamoto’s motivation for Bitcoin was to create a “purely peer-to-peer form of electronic cash” that would not require trust in third parties for transactions and whose supply cannot be altered by any other party.

a distributed peer-to-peer network with no single point of failure, hashing, digital signatures, and proof-of-work.

Every transaction has to be recorded by every member of the network so that they all share one common ledger of balances and transactions. Whenever a member of the network transfers a sum to another member, all network members can verify the sender has a sufficient balance, and nodes compete to be the first to update

In order for a node to commit a block of transactions to the ledger, it has to expend processing power on solving complicated mathematical prob- lems that are hard to solve but whose correct solution is easy to verify. This is the proof-of-work (PoW) system, and only with a correct solu- tion can a block be committed and verified by all network members. While these mathematical problems are unrelated to the Bitcoin trans- actions, they are indispensable to the operation of the system as they force the verifying nodes to expend processing power which would be wasted if they included fraudulent transactions

Once a node solves the proof-of-work correctly and announces the transactions, other nodes on the network vote for its validity, and once a majority has voted to approve the block, nodes begin committing transactions to a new block to be amended to the previous one and solving the new proof-of-work for it

Crucially, the node that commits a valid block of transactions to the network receives a block reward consisting of brand-new bitcoins added to the supply along with all the transaction fees paid by the people who are transacting.

This process is what is referred to as mining, analogous to the mining of precious metals, and is why nodes that solve proof-of-work are known as miners.

Nakamoto programmed Bitcoin to produce a new block roughly every ten minutes, and for each block to contain a reward of 50 coins in the first four years of Bitcoin’s operation, to be halved afterwards to 25 coins, and further halved every four years.

The quantity of bitcoins created is preprogrammed and cannot be altered no matter how much effort and energy is expended on proof-of-work. This is achieved through a process called difficulty adjustment, which is perhaps the most ingenious aspect of Bitcoin’s design

But as the processing power rises, Bitcoin will raise the difficulty of the mathematical problems needed to unlock the mining rewards to ensure blocks will continue to take around ten minutes to be produced.

Difficulty adjustments

Difficulty adjustment is the most reliable technology for making hard money and limiting the stock-to-flow ratio from rising, and it makes Bitcoin fundamentally different from every other money.

For every other money, as its value rises, those who can produce it will start producing more of it. Whether it is Rai stones, seashells, silver, gold, copper, or government money, everyone will have an incentive to try to produce more. The harder it was to produce new quantities of the money in response to price rises, the more likely it was to be adopted widely and used, and the more a society would prosper because it would mean individuals’ efforts at producing wealth will go toward serving one another, not producing money, an activity with no added value to soci- ety because any supply of money is enough to run any economy

The security of Bitcoin lies in the asymmetry between the cost of solving the proof-of-work necessary to commit a transaction to the ledger and the cost of verifying its validity.

t costs ever-increasing quantities of electricity and processing power to record transactions, but the cost of verifying the validity of the transactions is close to zero and will remain at that level no matter how much Bitcoin grows

commit fraudulent transactions to the Bitcoin ledger is to deliberately waste resources on solving the proof-of-work only to watch nodes reject it at almost no cost, thereby withholding the block reward from the miner.

Bitcoin’s shared ledger can be likened to the Rai stones of Yap Island discussed in Chapter 2, in that the money does not actually move for transactions to take place. Whereas in Yap the islanders would meet to announce the transfer of the ownership of a stone from one person to the other, and the entire town would know who owned which stone, in Bitcoin members of the network would broadcast their transaction to all network members, who would verify that the sender has the balance necessary for the transaction, and credit it to the recipient.

To the extent that the digital coins exist, they are simply entries on a ledger, and a ver- ified transaction changes the ownership of the coins on the ledger from the sender to the recipient. Ownership of the coins is assigned through public addresses, not by name of the holder, and access to the coins owned by an address is secured through the ownership of the private key, a string of characters analogous to a password.

What keeps Bitcoin nodes honest, individually, is that if they were dishonest, they would be discovered immediately, making dishonesty exactly as effective as doing nothing but involving a higher cost. Collectively, what prevents a majority from colluding to be dishonest is that if they were to succeed in compromising the integrity of the ledger of transactions, the entire value proposition of Bitcoin would be destroyed and the bitcoin tokens’ value would collapse to nothing. Collusion costs a lot, but it would itself lead to its loot becoming worthless. In other words, Bitcoin relies on economic incentives, making fraud far costlier than its rewards.

No single entity is relied upon for maintaining the ledger and no single individual can alter the record on it without the consent of a majority of network members. What determines the validity of the trans- action is not the word of a single authority, but the software running the individual nodes on the network

Ralph Merkle, inventor of the Merkle tree data structure, which is utilized by Bitcoin to record transactions, had a remarkable way of describing Bitcoin: 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. 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. If nuclear war destroyed half of our planet, it would continue to live, uncorrupted. It would continue to offer its services. It would continue to pay people to keep it alive. The only way to shut it down is to kill every server that hosts it. Which is hard, because a lot of servers host it, in a lot of countries, and a lot of people want to use it. Realistically, the only way to kill it is to make the service it offers so useless and obsolete that no one wants to use it. So obsolete that no one wants to pay for it. No one wants to host it. Then it will have no money to pay anyone. Then it will starve to death. But as long as there are people who want to use it, it’s very hard to kill, or corrupt, or stop, or interrupt. Ralph Merkle, “DAOs, Democracy and Governance,” Cryonics, vol. 37, no. 4 (July–August 2016): 28–40; Alcor, www.alcor.org

Bitcoin is a technology that survives for the very same reason the wheel, knife, phone, or any technology survives: it offers its users benefits from using it.

It’s worth adding that all the parties that make Bitcoin work are individ- ually dispensable to its operation. Nobody is essential to Bitcoin, and if anybody wants to alter Bitcoin, Bitcoin is perfectly capable of continu- ing to operate as it is without whatever input anyone has on this. This will help us understand the immutable nature of Bitcoin in Chapter 10, and why attempts at making serious changes to the Bitcoin code will almost inevitably lead to the creation of a knockoff version of Bitcoin, but one that cannot possibly recreate the economic balance of incentives that keeps Bitcoin operational and immutable.

Bitcoin can also be understood as a spontaneously emergent and autonomous firm which provides a new form of money and a new payments network

The new money can be an NFT? or even a pseudo-NFT (for cost-saving)

The value proposition of this firm is that its money supply is completely inelastic in response to increased demand and price; instead, increased demand just leads to a safer network due to the mining difficulty adjustment. Miners invest electricity and processing power in the mining infrastructure that protects the network because they are rewarded for it. Bitcoin users pay transaction fees and buy the coins from the miners because they want to utilize digital cash and benefit from the appreciation over time, and in the process they finance the miners’ investment in operating the network. The investment in PoW mining hardware makes the network more secure and can be understood as the firm’s capital. The more the demand for the network grows, the more valuable the miners’ rewards and transaction fees become, which necessitates more processing power to generate new coins, increasing the company’s capital, making the network more secure and the coins harder to produce. It is an economic arrangement that has been productive and lucrative to everyone involved, which in turn leads to the network continuing to grow at an astonishing pace.

With this technological design, Nakamoto was able to invent digital scarcity. Bitcoin is the first example of a digital good that is scarce and cannot be reproduced infinitely. While it is trivial to send a digital object from one location to another in a digital network, as is done with email, text messaging, or file downloads, it is more accurate to describe these processes as copying rather than sending, because the digital objects remain with the sender and can be reproduced infinitely. Bitcoin is the first example of a digital good whose transfer stops it from being owned by the sender.

Design scarcity, or reconnect scarcity. Even with the invention of digital scarcity, it’s decoupled from the material reality, disregarding the resource (electricity and water) that is also shared with anyone outside the economic sphere,

Beyond digital scarcity, Bitcoin is also the first example of absolute scarcity, the only liquid commodity (digital or physical) with a set fixed quantity that cannot conceivably be increased. Until the invention of Bitcoin, scarcity was always relative, never absolute. It is a common mis- conception to imagine that any physical good is finite, or absolutely scarce, because the limit on the quantity we can produce of any good is never its prevalence in the planet, but the effort and time dedicated to producing it. With its absolute scarcity Bitcoin is highly salable across time.

Need to read more on this part

![[InkspaceFile.jpeg]]

![[the-bitcoin-standard.pdf]]