The opposing books, side by side

The Blocksize War by Jonathan Bier

The post A SHORT REBUTTAL OF A RECENT BITCOIN CRITIQUE appeared first on Bitcoin Shop.

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:

3. 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

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

https://bitcoin.org/bitcoin.pdf

Presentations:

5. 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:

6. 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/
7. 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/
8. Bitcoin Is Time | dergigi.com. (n.d.). Retrieved 22 March 2023, from https://dergigi.com/2021/01/14/bitcoin-is-time/
9. Bitcoin’s Meme Wars. (2023, March 21). Dergigi.Com. https://dergigi.com/2023/03/21/bitcoin-s-meme-wars/
10. Magic Internet Money—The Magical Origins of Bitcoin. (2021, November 2). Dergigi.Com. https://dergigi.com/2021/11/02/magic-internet-money/
11. Breedlove, R. (2022, June 24). The Number Zero and Bitcoin. Medium. https://breedlove22.medium.com/the-number-zero-and-bitcoin-4c193336db5b
12. 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:

13. WTF Happened In 1971? (n.d.). WTF Happened In 1971? Retrieved 22 March 2023, from https://wtfhappenedin1971.com/
14. com. (n.d.). Retrieved 22 March 2023, from https://www.hope.com/en/websites
15. Bitcoin Books. (n.d.). Bitcoin Resources. Retrieved 22 March 2023, from https://bitcoin-resources.com/books/
16. Satoshi Nakamoto Institute. (n.d.). Retrieved 22 March 2023, from https://nakamotoinstitute.org/
17. 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:

18. The Saylor Series—YouTube. (n.d.). Retrieved 22 March 2023, from https://www.youtube.com/playlist?list=PL2jAZ0x9H0bQFY6wIbQfnrnIlqMcSHd6X
19. Michael Saylor—Bitcoin VS Ethereum—YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/Of0Ojk9yVWE
20. 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
21. BTC117: Bitcoin and the Start of the Information Era w/ Luke Broyles – YouTube. (n.d.). Retrieved 22 March 2023, from https://youtu.be/695SjcxoejY
22. ‘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
23. 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
24. 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

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The Bullish Case for Bitcoin was written and published in 2021 by Vijay Boyapati, PhD in Computer Science. The book is a longer version of the article of the same name, which has been read by more than a million people. Published in 2018, it is the most widely read non-technical work on bitcoin. Boyapati initially wrote the article for family and friends who were interested in bitcoin, but over time demand grew to the point where he decided to turn the ideas in the article into a book.

In less than 100 pages, the author presents the economic, technical, psychological and philosophical basis for understanding bitcoin, making this book an extremely suitable gift for those who do not have the time or inclination to read longer texts. In this short and concise account, the author takes us through the basics of monetary terminology, reconstructs the history of money and shows its evolution to the creation of bitcoin. In his analysis of bitcoin, the author focuses on the dominant cycles of enthusiasm and the s-shaped curves that characterise the adoption of new technologies.

Book summary

The author starts by describing the basic functions and properties of money, to which he adds two original characteristics – its established history and its resistance to censorship. It uses this framework to compare gold, fiat currencies and bitcoin, objectively explaining the shortcomings of each and highlighting the main advantages they bring. It presents Bitcoin as a more advanced form of money, slowly siphoning off the monetary premium of other commodities and adding it to itself. While most commodities have other uses besides the monetary premium, such as prosumption, collecting and consumption, bitcoin is almost entirely monetary, a role it fulfils extremely effectively.

In his analysis of bitcoin adoption, the author focuses on Gartner’s enthusiasm cycles, where with each new cycle a new group of people enters, and interest in the technology grows until the number of people belonging to that group is exhausted. The initial rise in value is followed by a fall to a plateau, where the technology can stay for quite a long time until it settles at some higher point until the next cycle. Due to its limited supply, which is issued in four-year cycles, Bitcoin has built-in Gartner cycles that are triggered after each halving of its supply.

Finally, the author addresses the common doubts about the sustainability and existence of the bitcoin network, which he disarms with convincing arguments. In addition to the frequent doubts, he also responds to more serious risks that concern him, such as the development of quantum computing, weaknesses in cryptographic algorithms, state attacks and so on.

Conclusion

Written by a long-time Bitcoin expert and enthusiast, the book The Bullish Case for Bitcoin is an excellent overview of the basic properties of bitcoin money and the bitcoin network, and his work has helped to bring many intellectuals and academics into the bitcoin community. The foreword to the book is written by none other than Michael Saylor, the biggest “bull” of the ecosystem, whose passionate persuasiveness spreads the idea of a libertarian, open and neutral monetary system that enables savings and prevents the theft of wealth from everyone in the world. The book is recommended reading for everyone, from complete laymen to long-time enthusiasts and experts, as it provides new insights into network operations and economic theory.

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A hardware wallet is a device that allows an individual to create and securely store their own private keys. The key advantage over a software wallet (web, desktop, mobile, etc.) is that a hardware wallet does not share confidential information with any other device to which it is connected in any way.

Blockstream JADE Plus – Lunar silver

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Ledger Nano X – Gold

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OneKey Classic 1S Pure

79,00 €

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Keystone 3 Pro

134,99 €

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319,99 €

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How does the hardware wallet work?

The user’s private key is on the hardware wallet, not the cryptocurrency, which is a unit in a blockchain called a block. Crypto coins are stored on a “blockchain”, which is a record of all transactions and balances, and is continuously accessible via the internet. The private key acts as an authentication of a certain amount of cryptocurrency on the blockchain, but it also allows the funds to be moved around, for example, sent to another address.

The primary role of a machine wallet is to sign transactions, i.e. the transfer of value between different addresses. The signature can be made using a (unique) private key.

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WHICH WALLET TO CHOOSE?

There are already a large number of providers of hardware wallets on the hardware wallet market. Most manufacturers offer their own software solutions to facilitate the storage of cryptocurrencies. As there are many factors that influence the choice of a wallet, we’ve put together our guide to choosing a hardware wallet to help you decide.

Find a hardware wallet that is tailored to your needs

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If you intend to store only Bitcoin in a hardware wallet, we recommend a wallet that exclusively supports Bitcoin, as it is a safer option. If you plan to store other currencies as well, choose a wallet that allows you to do so. Please select what you intend to store..."

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DEMONETISATION OF GOODS

As we have already discussed in this essay, the main problem of modern society is the monopolisation of the money market under state power. It allows the unlimited expansion of money in the economy and the allocation of new units of money to politically connected elites. All that increasing the money supply in society achieves is a redistribution of wealth from savers to borrowers and owners of scarce goods. In a world of unreliable and easy money, those who profit most are those who borrow money to buy scarce commodities such as real estate, company shares, precious metals, property and, most recently, bitcoin.

As the quantity of money increases, the price of scarce goods rises, as their supply is much lower than that of easy money, and the demand for them increases year by year as people start to use them as store of value, thereby gaining a so-called monetary premium. The monetary premium is a term for the added value we attach to a good over and above its industrial value, because in addition to its intended role, the good also partly fulfils the role of money in terms of storing our purchasing power. Real estate has been a fine example of a monetary premium on goods over the years, as people have started to buy it as an investment to improve their wealth and earn a return in the form of rents. The price of real estate is rising rapidly due to the growing investment demand from people who have a surplus of easy money and want to invest it in something that preserves its purchasing power better than a savings account.

The problem with a monetary premium on goods is that it artificially increases their market price and prevents those who need them most from buying them. Individuals who want to buy a property to live in have to pay an extra premium, which often requires taking out loans and paying interest that puts people in debt for life. There is only one solution to this problem: to find a reliable means of money that preserves the purchasing power of savers and destroys the need to monetise commodities. This is where our understanding of bitcoin as the best store of value we humans have ever had comes into play. Bitcoin’s money supply is strictly limited, which means that in the long run it has no inflation and thus does not eat into savers’ purchasing power. In 2024, its annual supply will grow by less than 1%, making it the lowest inflation commodity in the economy and making bitcoin the most reliable store of value.

The first consequence of bitcoin adoption is therefore the erosion of the monetary premium of commodities, as individuals will start to convert their investment assets into bitcoin, whose value will rise faster in the market than that of other commodities. The reason for this lies in bitcoin’s economic characteristics, as it is a commodity with a strictly limited amount of units that can be sent through communication channels, and its marketability is increasing day by day. Buying a property is very risky because it is subject to several external factors such as regulation, a falling property market, very limited divisibility into smaller units, taxation, changes in political regimes and extremely slow sales. If we want to sell a property, we need to find a buyer who is willing to pay a huge amount of money to buy it. But the marketability of bitcoin is much higher, as there are countless individuals on the exchange who are willing to buy a piece of our bitcoin assets within minutes.

Bitcoin thus devalues monetised goods to the point where their market value correctly reflects their actual role. This means that goods will become increasingly cheaper for bitcoin savers, thus reducing economic inequality significantly, along with poverty levels. This will make the world much more like the gold standard era, where the middle class held most of the wealth and differences between people were minimised. Bitcoin can compound this, as its economic properties are several orders of magnitude better than gold.

THE RISE OF FREEMASONRY

Another consequence of the shift to sound money is the guarantee of individual sovereignty and freedom, and a reduction in the scope of government. In today’s world, the majority of the population is dependent on the government to “look after” their well-being through benefits, child allowances, state grants, pensions and countless other taxpayer-funded state expenditures. The problem with this type of economic system is the pervasive dependence on the public purse and the declining capacity to save. As the Treasury fails to finance the purchase of scarce goods, while at the same time pushing up their market prices through inflation and bad investments, people are also increasingly dependent on borrowing. In this way, the authorities, through the political apparatus and the financial system, enslave their populations, who pay ever higher taxes, levies and interest on the loans that the banks make on the cheap, without having to hold sufficient deposit reserves.

The authorities can be imagined as a giant parasite, slowly sucking the blood of its host, in return offering it apparent security and empty promises. All the services provided by the public sector are much more efficiently provided by the free market. Ask yourself when the public sector has ever delivered any service perfectly and efficiently. In exchange for free health, education, administrative and other services, we get long queues, poor quality of service, bored professors who chew over the same textbooks without animating their students with up-to-date information and stimulating them to think with their heads, and civil servants who multiply like bacteria on a toilet bowl, their efficiency comparable to that of a washing machine in removing stubborn stains from the laundry detergent.

WHO IS BITCOIN FOR?

Bitcoin is not for everyone. It is especially not for those who have transferred responsibility for their lives to a large extent to the state apparatus and have become dependent on it, like a son in an Oedipal relationship with his mother and in a combative disposition against his father, who is trying to destroy this complex. These people will fight with all their might against money, which will shift responsibility to the individual and reduce the parasitic scope of power. Quitting this kind of addiction will be similar to quitting addictive substances, but a little easier, as bitcoin is accompanied by a steady increase in purchasing power that encourages addicts to get well and allows them to have a better quality of life.

Bitcoin is primarily for those who are already strictly critical of the authorities and understand the consequences of state interference in the economy. It is also for those who have been declared pariahs by the authorities and have had their access to the financial system restricted. Sooner or later, however, bitcoin will be suitable for all those who want to keep even a fraction of the wealth they produce, as rising inflation and taxation will soon seize most of our possessions, while the accelerating rise in the price of easy money units will make it impossible for individuals to buy the basic necessities of life.

Bitcoin is a luxury good in the current Western world, where we have a number of financial and other instruments that allow us to maintain a part of our purchasing power without our standard of living significantly decreasing day by day. Yet our purchasing power is melting like an ice cube, leaving increasing numbers of people living month to month and paycheck to paycheck without saving enough money for a rainy day. But the situation is very different outside the Western world. Inflation is normal, sometimes even desirable, in third world countries, where regimes often fall into hyperinflationary crises, where state money becomes completely debased and serves only as a poor whoring tool. Everyday shopping in the shops is marked by piles of money carried around in bags, with crowds of people crowding outside the store at all hours of the day, as prices can rise and food stocks can be depleted by the end of the day.

In third world countries, bitcoin is not a luxury good, but an escape route from deadly poverty and hunger. As a result, we have seen the legalisation of bitcoin as an official means of payment in the Republic of El Salvador, which experienced a hyper-inflationary collapse of its currency before dollarisation. Salvadorans have very limited access to the financial system, which means that most economic activity is conducted in cash. Even more depressing is the prevailing global situation where almost 2 billion adults are unbanked, which covers about half of the adult population and does not include minors, whose access to the financial system is even more limited. Bitcoin represents the only glimmer of hope for these people to rise from the poverty line through economic activity. It allows individuals to become their own bank simply by installing an app on their mobile phone. They can then immediately start doing business with the developed world without restrictions, censorship or reliance on financial institutions. Time will tell what the long-term consequences of this revolutionary invention are, but in the present we can witness the tectonic changes that bitcoin, with its relatively low market capitalisation, is causing in society.

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At its core, blockchain technology is simply a distributed database to which new transactions are added in the form of blocks. This information is sealed using cryptography, and the blocks are linked in time sequence via hash values. After the bitcoin network successfully accomplished this, a large number of programmers began to look for other potential applications of this technology. The very idea of block chaining originates from the previous millennium, and it was related to time-stamping documents. The first practical use of this idea appeared with the creation of bitcoin in 2009. Satoshi Nakamoto used the technology as a mechanism for achieving mutual consensus between nodes in the network. The charm of his invention is not only the achievement of consensus, but the mechanism that ensures it.

CONENSUS

In order for the network to reach consensus on a new block of transactions, Nakamoto incorporated the 256 cryptographic algorithm into the blockchain technology, which ensures that miners must use a sufficient amount of computing power to calculate the hash value of the new block. At first, new blocks could be mined using traditional computer chips, but then the difficulty of mining gradually increased, which required the use of graphics cards, and finally led to the invention of very specific computers that are optimized only for computing SHA256 (secure hashing algorithm 256) of cryptographic formulas. This means that a special supply chain has developed in which many companies compete to build ever more powerful computers whose sole function is to mine bitcoin.

Mining computers use enormous amounts of electricity to operate, a common observation by opponents of bitcoin technology, saying that the network consumes too much energy and thus harms the environment. The truth is that computers themselves have no more emissions than all other electronic devices, as they do not emit carbon dioxide, but only heat. They buy electricity from the grid, just like all households and businesses, and in the process finance power plants that are discovering more and more efficient ways of generating electricity.

The consumption of electricity converted into cryptographic energy through the SHA256 function represents this Proof -of-Work mechanism. This mechanism ensures that no one on the network can cheat when mining new bitcoin blocks, because for each block calculated, they have to spend a large amount of capital dedicated to mining equipment and paying bills for electricity consumption. Since the electricity is obtained from natural energy sources, this ensures that no miner can calculate new blocks without cost. The proof-of-work mechanism thus represents a bridge that connects the bitcoin digital network to the material world, since changing information in the blockchain requires energy obtained from material resources. This helps us understand why the Bitcoin blockchain is so resistant to external influences, as it cannot be tampered with by anyone without having to invest a huge portion of their wealth in the mining process.

Wealth alone does not provide an individual with any decision-making power. The decision-making power comes from the total amount of hashing power possessed by the individual mining computers. With this power, the individual competes with the entire mining network, whose computing power exceeds the computing power of the entire global computer network. It’s true – Bitcoin’s total hashing power on the network exceeds the hashing power of all the other computers in the world combined.

In addition to the difficulty of the mining process, the network is protected by a social layer of protection. The nodes connected in the network determine the version of the bitcoin software in use. The only way to achieve a radical change to the Bitcoin protocol is for the majority of nodes in the network to adopt a revised version of the software and broadcast it to the network. This achieves a consensus on which version of bitcoin is in use. This means that nodes will not accept a version of bitcoin that they believe poses a threat to their assets.

NETWORK SCALABILITY

Forking the main blockchain is the only way to upgrade the network, since the software cannot be changed once the blockchain was published. A fork creates two separate chains that share a history of blocks and transactions. Nodes in the network then voluntarily decide which version of the chain to manage. The version with the most users becomes dominant, forming a consensus. There are two ways to split a chain: soft fork and hard fork.

A soft fork is merely a proposal to improve the code, which is backwards compatible and does not create a new cryptocurrency. The newly formed chain is consistent with the fundamental parameters of the network. Nodes decide whether to update their software to the new version and thus determine the success of the upgrade. If the improvement proposal gathers enough support from miners and nodes within a certain time, it takes over most of the mining power and reaches consensus, and the old chain is terminated. Otherwise, the new chain is terminated. A soft fork is similar to upgrading the operating system on our Apple phone, where the phone remains within the same ecosystem and only the software is updated.

A hard fork is a fundamental software change that is not compatible with the old version of the chain. It creates two completely separate chains with different cryptocurrencies competing for supremacy. They differ in the fundamental parameters of the network, such as the mining algorithm, block size, coin supply, etc. A hard fork is thus similar to trying to exchange our Apple phone for a Samsung phone with a new operating system. The new version is not compatible with the old one.

Many cryptocurrencies, such as Bitcoin Cash and Litecoin, are merely hard forks of the Bitcoin chain. Their market capitalization and amount of mining power, however, determines their performance. Bitcoin remains the most powerful and largest computer network in the world without experiencing a single successful hard fork. This illustrates its resistance to fundamental changes in the main parameters of the network. In the past decade, we could witness many attempts to change the bitcoin “constitution”, but without success. Its community is aware of the importance of the integrity of the network and the randomness of its creation. Any fundamental change would pose a potential risk for further changes that could harm its users.

BLOCKCHAIN: YES OR NO?

As can be concluded from the previous paragraph, ensuring consensus within the bitcoin network is extremely expensive and energy-consuming. This is the price that must be paid to establish a completely independent, decentralized information system, which certainly cannot be tampered with by anyone without following its rules. Many wonder if there are other applications of blockchain technology that could potentially be better than the existing bitcoin. Thus, many developers and investors began to invest in the development of various ways of using the distributed blockchain data chain. In doing so, however, they encountered a number of problems posed by avoiding the centralization of the database, which in the vast majority of cases raised the costs of the blockchain beyond its actual benefit. The only truly beneficial use of blockchain where its benefits far outweigh its costs is the bitcoin network. The creation of an independent monetary system, resistant to the intervention of the authorities and other external influences, is important enough to justify the distribution of the accounting book among its users and demands a high consumption of electricity.

A problem that arises with other applications of blockchain technology is that it is extremely difficult to achieve decentralized consensus despite the distribution of the database among users. In order for users to agree with each other, it is not enough to provide them with the right to vote, but we must equip this right with material costs. If we do not provide this, a group of users may accumulate a sufficient amount of decision-making power to obtain a majority decision-making right. The only way to prevent depraved human nature from interfering with the monetary system is to bind this process to mathematical and physical laws, which are immutable to us. Since this is extremely expensive, we have two sensible options: choose a decentralized blockchain and accept the high administration costs, or choose a more affordable and efficient centralized database. Our decision is based on the importance of the problem we want to solve.

So far, we have not discovered a problem that would justify the use of a decentralized database with a proof-of-work mechanism whose costs would not exceed the benefits, except for the creation of a monetary protocol. It is also possible to implement a blockchain with another consensus mechanism, but only this one combines the worst features of both systems in the vast majority of cases. Not only is it inefficient and expensive, but a blockchain with another consensus mechanism very quickly falls victim to the centralization of decision-making power.

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Sending money through communication channels creates an opportunity for abuse, where the sender creates a copy of the digital money to send to the recipient, while keeping the original for themselves. Since both parties have an identical copy of the money, the sender made the purchase at no cost, and the money supply increased by the amount he sent. This means, in theory, that digital money cannot exist in the absence of information scarcity, as its supply would expand indefinitely, leading to monetary hyperinflation and imminent economic collapse. The solution is therefore to ensure information sparsity. We managed to partially solve this problem several decades ago with the help of centralized clearing houses . This role was usually performed by banks and payment processors, who kept users’ money balances on their centralized databases and thus ensured the validity of transactions and the prevention of multiple spending of funds.

Because they held huge amounts of money, these entities were easy targets for hacker attacks, to which they very often succumbed. They were also an easy target for attacks by the authorities, which imposed mandatory identification of users, reporting of cash flows, prevention of money laundering and similar nebulae. This gave the government unlimited power in controlling the monetary policy and capital of its population, as it could alienate or freeze the assets of individuals with just a few clicks and decrees. Digital money also allowed the authorities a very simple method of increasing the money supply, as fiat money became possible to print at no cost because it represented only numbers on a screen.

Another solution to solving the absence of information rarity developed in the circles of cryptographers, who for decades fought against government encroachment on individual privacy and freedom, and were aware of the role that money played in this. After many failed attempts to create digital money, which mostly failed due to the centralization of certain parts of the system, the first potential solution appeared in 2008. An anonymous programmer who went by the pseudonym Satoshi Nakamoto published a white paper on a cryptographic forum that presented the architecture of a peer-to-peer monetary system with its own currency called bitcoin.

PEER TO PEER TECHNOLOGY

Bitcoin is based on peer-to-peer technology, which allows parties to transact directly without relying on a payment intermediary. This technology has been around for many years, and we use it to share files directly, without relying on centralized servers. In peer-to-peer technology, each “peer” or node is both a server and a client. Peer-to-peer technology allows network decentralization without the need for a central authentication server.

NODES

Since each peer in the Bitcoin network is both a server and a client, the name “node” has been established for easier understanding. A node is any computer that has bitcoin software installed and can receive or send transactions and verify their validity on the blockchain.

MINING

Issuing bitcoins partially mimics the traditional mining of gold ore from the Earth’s crust. The process is called mining, which in the eyes of many is a dirty and harmful concept. The truth is that mining new coins is simply a process where specialized computers use electricity to calculate a cryptographic equation. In this respect, they are no different from other computers and, despite the erroneous belief of many environmentalists, they do not pollute the environment, since the side effect of electricity consumption is only the emission of heat. The computer that first correctly calculates or guess the solution to the cryptographic puzzle, he is rewarded with new coins that enter circulation through him. The most appropriate analogy for the process of calculating and verifying a cryptographic equation is solving a Sudoku puzzle. The solution to the puzzle is very complicated, but its verification is extremely easy. Similar to Sudoku, when computing a cryptographic puzzle, miners spend a lot of energy to arrive at a suitable result. The nodes can then easily check the appropriateness of their solution, as it must correspond to the exact rules set by the system.

In addition to discovering new coins, miners also maintain the network. This is actually their main task, for which the system rewards them. Mining computers ensure that new transactions are entered into the blockchain, thereby updating balances. Their work is constantly monitored by nodes that check the compliance of the newly calculated blocks with the rules of the network. If a mining computer tries to enter inconsistent information into the chain, the nodes discard its change and commit to new ones. The whole process is very similar to playing a board game where all players agree to the rules. When someone comes along who wants to change the rules in his favor, the other players reject him, and he can only play his game with himself. If he wants others to join him, he has to convince them, which is an increasingly difficult task with a growing number of users.

The basis of the mining process is a system for achieving consensus, which is called Proof of Work. This ensures that new blocks can only be discovered by honest computers that consume a sufficient amount of electricity converted into hashing power to calculate the cryptographic equation. Electricity consumption alone is not enough, as this would allow the authorities to easily interfere with the grid, since they own most of the power plants and thus free electricity with which they could censor and attack the grid. Mining computers contain special processors whose sole role is to compute the SHA-256 cryptographic algorithm. Because of the specialization, these computers are much more efficient at computing new hashes than the average computer with a general-purpose processor. The total hashing power of the bitcoin network currently exceeds the total computing power of all other computers in the world by several orders of magnitude. This means that we do not have sufficient infrastructure available for the authorities to interfere with the operation of the network, as it is protected by decentralized mining computers scattered around the world, while hiding behind VPN technology.

DIFFICULTY ADJUSTMENT ALGORITHM

We have already explained how the mining of new coins works. We also mentioned that the mining process of the new coins is temporary and is completed after 32 halvings to mine the entire supply of bitcoins. We will explain the coin release schedule in more detail in the next part.

A common question people have when understanding the mining process is how to ensure that new blocks are mined every 10 minutes without causing too much variance due to fluctuating mining power. If the mining power spikes, it means that the blocks will be mined faster, and vice versa. The creator of the bitcoin network solved this problem with this difficulty adjustment algorithm . This monitors the average mining power over a period of 2016 blocks (about 14 days) and adjusts the difficulty of the cryptographic equation if necessary so that the average block addition time corresponds to 10 minutes. The difficulty adjustment mechanism is similar to the servo mechanism in vehicles, which helps drivers with precise steering. A similar calibration mechanism is used by other devices and machines such as watches, airplanes, compasses, etc.

The effectiveness of the difficulty adjustment algorithm is evident from the fact that the average block addition time throughout the history of the Bitcoin blockchain is very close to 10 minutes.

COIN ISSUANCE SCHEDULE

Bitcoin’s coin release schedule is derived from a logarithmic function where the mining process is divided into 32 periods. In the first period, from the start of the block chain, 50 coins were issued with the new block. This period lasted for the first 210,000 blocks or about 4 years. In the next period, the reward for a successfully calculated block was halved to 25 coins. After 420,000 blocks, the reward was halved again to 12.5 coins, and in 2023 it is 6.25 coins. Sometime in the first half of 2024, with 840,000. block, the reward will be halved to 3,125 coins, bringing inflation of new coins below 1%/year.

After the end of the 32nd coin release period, sometime in the first half of the 22nd century, the entire supply of bitcoins will be released, and this will complete the mining process. After this period, the only reward for adding blocks will be the transaction fees paid by users to send coins to other users. Many worry that these costs will be so high that no one will want to send coins across the blockchain, leading to the centralization of the network at higher levels where central payment intermediaries will handle settlements.

ELLIPTIC CURVE CRYPTOGRAPHY

Bitcoin’s security is based on mathematical rules. Cryptography is a special field of computer science that deals with the protection of information and secure ways of communication with the help of mathematical concepts. Through the many attempts of cryptographers to encrypt data and create digital money, many cryptographic algorithms have been developed, such as Merkle trees, public and private key cryptography, hashing algorithms, consensus mechanisms, and the like.

The bitcoin network works using a combination of these mechanisms, and its security is mainly provided by the mathematical reality of elliptic curve cryptography, which allows the public key that represents our digital safe not to reveal the private key that represents our access to the digital safe. The public key is a mailbox that people can send bitcoins to, and it can only be unlocked by knowing the private key. Elliptic curve cryptography thus allows us to sign or approve our transactions with the help of a private key and thus send them from our account to another without revealing our key to the public.

In the next chapter, we will go over the (too) often mentioned term “blockchain” and review its characteristics.

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The initial reward for a newly calculated block of transactions was 50 bitcoins in 2009, but this dropped to 25 bitcoins in 2012, 12.5 in 2016, and 6.25 in 2020. The next halving will occur in the first half of 2024, and only 3.125 bitcoins per block will be issued. There are 32 such halvings, after which the issuance of new coins ends and bitcoin becomes the first monetary system without inflation. The last halving is said to have occurred sometime in the first half of the 22nd century. The total number of issued coins will be just under 21 million. Due to the mining algorithm, the Bitcoin network represents the only asset whose monetary policy is completely transparent and predictable. This means that we can know at any moment how many coins are in circulation and what their current inflow is.

The economic consequences of this technological phenomenon are unknown: it is the first commodity whose supply does not adjust to demand, but operates according to a predetermined schedule. As the system halves the annual inflow every four years, ceteris paribus, the market price of bitcoin automatically begins to rise. Selling pressure from miners is cut in half because the same amount of miners are fighting for a smaller amount of coins. With constant demand, this creates buying pressure, and bitcoin enters a new business cycle of rising prices. The increase in value is also influenced by external macroeconomic factors: inflationary monetary policy of central banks, commercial use of bitcoin, development of the network and improvement of the user experience.

STORE OF VALUE

Why Is Bitcoin’s Coin Offering So Special? As we have already established, the algorithm for issuing new coins is a logarithmic function. This means that the amount of new coins compared to the existing supply decreases exponentially with each halving. The amount of newly issued coins in the current four-year period is thus twice as low as in the previous period, where the block reward was twice as high. This ensures that in the first bitcoin mining period, where the reward was 50 coins, 50% of all coins were issued. In the next four year period, where the reward was 25 coins, 25% of all coins were issued , etc. This means that already in the third period more than 75% of all coins were issued, and in the current fourth period there are already more than 19,000,000 bitcoins available, or 90% of the entire supply.

The new coin inflow in the current period is 6.25 bitcoins per block, 900 per day and 328,500 per year. This means that the current inflation of new bitcoins is about 1.73%, considering the total supply of 19,000,000 bitcoins. With the transition to a new mining period, in which 3,125 coins will be issued per block, 450 per day and 164,250 per year, the inflation of new coins will drop to less than 1% compared to the stock of already issued coins. This means that bitcoin will become the most inflation-resistant commodity in the world, whose only competition is currently gold, whose annual inflation is somewhere between 1 and 2 percent.

What are the implications of this feature of the bitcoin network for its users? The limited supply means that the entire economic value held in the bitcoin network in the form of digital coins loses less than 1% of purchasing power per year, a figure that halves every four years. Already in the coming period, the inflation of new coins is negligible, and bitcoin preserves our purchasing power over time better than any other good in the economy. This allows participants in the system to keep assets and accumulate savings, the purchasing power of which grows over time, as every year the supply of goods on the market increases, and the inflow of bitcoins decreases. Our assets thus gain value over time, while the price of goods in bitcoin units falls. This turns the current economic reality on its head, as the supply of new dollars and other fiat currencies increases every year, and money loses purchasing power. The price of goods on the market in currency units thus increases every year, despite increased production, which makes savings and saving impossible, and thus forces unreasonable consumption.

Bitcoin encourages saving and accumulation of capital, which can then be invested in production processes that improve quality and increase the quantity of new products on the market. This is true because we have invested a larger amount of capital in production processes than we would have in the absence of savings. Headless investments lead to bad investments, in which the capital is not invested optimally, and this leads to a smaller amount of lower quality products.

MEDIUM OF EXCHANGE

In addition to being an extremely good store of value, bitcoin also represents a very efficient payment network with its own means of payment. Many critics point to bitcoin’s limited capacity as a payment medium, as transactions are only carried out every 10 minutes, and their volume is limited to a few thousand, which is much less than the number of transactions processed by the Visa or MasterCard networks. These critics do not understand the structure of the Bitcoin ecosystem, which contains several layers: the first layer represents the main Bitcoin network with a block chain, which really does not allow for high transaction liquidity. The charm of the technology lies in its upgradeability with the help of higher layers, which give the network enormous dimensions.

The second layer of the ecosystem contains payment channels that allow transactions to flow parallel to the blockchain and are simultaneously attached to it in such a way as to maintain compliance with the rules of the bitcoin network. This payment network is called Lightning and refers to a payment technology that relieves the main block chain with the help of payment channels and enables a practically unlimited amount of transactions of any value . We open a channel by writing a transaction to the main blockchain, which locks our coins into the network and allows us to send them across all the Lightning Network channels we’re connected to. Only the first transaction that opens the payment channel and the coin balance at that time is recorded in the main blockchain, and the last transaction that closes the channel, unlocks the coins and updates the balance. This system is similar to the payment system in restaurants, where food and drinks are recorded, and everything is settled only when we leave.

The Lightning Network is just one type of upgrade to Bitcoin’s ability to process payments. At higher levels, centralized alternatives can also do this, including conventional payment networks such as Visa and MasterCard. It is true, we can connect the bitcoin network to already existing payment networks and give it wings in this way.

UNIT OF ACCOUNT

A final important economic dimension of the bitcoin network is its pricing efficiency. We named the smallest building block of the bitcoin network a satoshi, in honor of its creator, and it represents 0.00000001 bitcoin. In other words, 100,000,000 satoshis make up one bitcoin. This is more than enough for the needs of the current economy; however, when the value of one bitcoin grows to the point where one satoshi would be too large to account for low-value goods, the decimal point can be moved back n places with a few software changes. This property of the network represents another major difference with the existing fiat system: Bitcoin’s supply is strictly limited upwards, while its divisibility is unlimited downwards. On the other hand, the supply of fiat currencies is unlimited upwards, while their divisibility is limited to only two decimal places. From this it follows that these two monetary systems are fundamentally opposite, which also represents the opposite implications of their adoption.

The fiat system, through inflation, allows wealth to be redistributed from the hands of the poor to the hands of the rich, who are closest to the fiat trough, while at the same time monetizing debt and encouraging users to borrow and spend more. Through deflation, Bitcoin forces users to save and accumulate capital, thereby enabling investments without borrowing and at the same time increasing the purchasing power of all its users over time. As the value of bitcoin increases relative to the value of other goods, all users benefit, as their share of the total coin supply does not decrease due to the absence of inflation.

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At the height of the economic crisis in 2008, an anonymous programmer published his first public record on a cryptographic forum. In it, he presented the idea of creating an independent money based on peer-to-peer technology , called Bitcoin. It was intended to offer a solution to the biggest problem of digital money, i.e. absence of information rarity. The nature of the information is such that we cannot guarantee that the sender will lose it during transmission and that the recipient will own it in its entirety. In practice, this is most evident when sending an e-mail – each e-mail sent is only a copy that the sender still keeps on his computer. Without an intermediary to ensure that the sender’s e-mail is deleted with certainty, we cannot guarantee that the recipient will be the sole owner of this message. Of course, this is not a problem when we are talking about the communication of information; occurs when we want to transfer a value. The problem of the need for an intermediary also represents the eternal problem of human nature: the need for trust.

The problem of creating digital money thus meant the problem of avoiding the need to trust an intermediary to prevent double-spending of information. Online banks and payment service providers thus ensured that the sender could not spend the sent money himself, since he was essentially sending only digital information in the form of zeros and ones.

BITCOIN

Bitcoin is a new form of digital money that is completely transforming the monetary infrastructure. It is the first monetary system that we humans designed ourselves. Its main feature is decentralized control. Since bitcoin is just a software record that can be loaded onto a computer, its software can be operated by any individual with access to the Internet. Anyone who has a copy of the bitcoin software loaded on their computer participates in deciding on the changes. This ensures a high level of system security, which is extremely difficult to change, as the majority of users must agree to the changes.

Since the system is distributed among its users, this bypasses the need for a central authority to ensure the validity of the information stored in the system. Bitcoin represents a ledger in which the balances of users who send coins called bitcoins to each other are constantly updated. New transactions are written into a block of transactions created by miners of new blocks, and their validity is checked by nodes. A node is any computer that runs the bitcoin software and verifies the authenticity of the information. Miners, on the other hand, are special computers that solve a cryptographic equation that creates a new block of transactions, and in return they are rewarded with new coins and transaction costs. So miners perform an activity for which they are rewarded, and their work is monitored by nodes. In this way, the system achieves decentralization, as each participant in the system checks all others and all others check him. At first glance, this seems very complicated, but cryptography simplifies this problem, since the hash value of new blocks enables easy verification of the validity of information.

The charm of blockchain technology is that it creates a time sequence of information based on cryptography, which is only valid if the hashed values of the blocks in the chain match. Thus, when adding new blocks of transactions, it is only necessary to check their compliance with the hashed value of the previous block. If the new hashed value matches the previous one, the mining computer has calculated the equation correctly and receives a reward for the work invested. This system is called proof of work, and it refers to the amount of electrical energy used that the computer converts into hashing power to calculate cryptographic equations.

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The consequences of abandoning reliable money were enormous. Accelerated inflation was the source of many market bubbles and caused increasingly severe business cycles, which in turn led to the redistribution of capital and its concentration in the hands of financial elites, and on the other hand caused economic devastation. In extreme cases, when inflation got out of control, many countries experienced its worst form, i.e. hyperinflation. Hyperinflation as an economic phenomenon did not exist before the beginning of the 20th century and in the absence of fiat money. The only historically recorded instance of hyperinflation before the 20th century occurred in France, as a result of attempts to establish a fiat system under the leadership of John Law, known as the father of fiat money. The consequences of his careless and opportunistic behavior led to the French Revolution.

 PLUNGING STANDARD OF LIVING

The consequences of the fiat system are not limited to the economic sphere, but its tentacles reach much further. Most of the state policy after the abandonment of the gold standard can be understood as constant attempts to hide the fact that the devaluation of the currency leads to a decrease in the purchasing power of its users, or a redistribution of it to the hands of the first recipients of the newly created money units. In practice, this means a constant increase in market prices, which is most noticeable in goods with the highest demand. Food, energy products, real estate and many other key elements of our lives experience the fastest price growth, which the government always manages to cover up through its strongest propaganda media – statistics and science.

By funding science with taxpayer money, the government gains incredible power to bend reality. If the price of energy rises too much, the authorities provide many studies that show that these energy products are harmful to the environment and that we must replace them with inferior alternatives, whose offer is co-financed by them, thereby covering up their cost. Also, food, the supply of which is more difficult to increase and thus its price increases faster with currency devaluation, the government uses science to replace it with cheaper, industrial food, the supply of which can be increased at much lower costs. Meat thus becomes harmful to health, and is replaced by vegetable oils and soy patties. That the explosion of obesity and cardiovascular diseases is the result of this is a mere coincidence, the cause of which cannot be linked to the fact that our bodies are consuming completely new and artificial food, for which evolution did not prepare us.

There are many more such and similar examples, but they also extend into the fields of architecture, music, culture, ethics, art, education, family relations and the like. The story repeats itself: because quality things become too expensive due to falling purchasing power, we have to replace them with cheaper and worse substitutes. Cathedrals are thus replaced by unstable socialist monuments, symphonies are overshadowed by popular songs, culture is replaced by ideology, ethics are devalued, art loses its charm, education turns into propaganda, and family relationships become scarce when both parents are absent due to work.

On the broader social front, the battle between voluntary exchange and forced alienation of property is also taking place. In the absence of hard money, trade stagnates, and in its place, armies cross national borders to seize foreign property by violence. If goods cannot cross national borders, soldiers will. A fiat system enforces war instead of peace.

THE WAR

In the second half of the 20th century and in the 21st century, we could witness many wars between the United States and other countries, either directly or indirectly. Directly, the USA was in a cold war with the Soviet Union, Syria, Libya, Iran, Iraq, Vietnam, Afghanistan, etc. Indirectly, it fought similar battles through its satellite countries under the auspices of NATO.

The war using easy money does not only include the traditional form of warfare with soldiers and weapons, but includes all cases of fighting against a common enemy, which can only be destroyed by increasing the money supply. The media ensures mass intimidation of the people and justification of monetary policy and interference with basic human rights and freedoms, especially the right to private property. The most high-profile wars of the 21st century did not take place on the battlefield, but in social and other media and in our everyday life. The covid-19 epidemic and the climate crisis are two good examples of this kind of war. What they have in common is above all the need for state intervention and financing of the fight to eliminate the danger.

The invocation of science, which conjures up an imaginary crisis and provides reasons for the need for intervention, is quickly followed by millions and billions of taxpayers’ money generated through the destruction of currency and economic stability. In the end, however, the benefit is always reaped by the corporations and elites who are closest to the trough from which the cash flow is constantly flowing. Pharmaceutical companies had the best financial reports in history precisely in 2021, when they provided with the greatest joy and speed experimental vaccines, or more precisely laboratory concoctions, the receipt of which was effectively imposed by a coordinated political apparatus of authorities around the world.

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