{"id":2629,"date":"2020-05-16T16:12:31","date_gmt":"2020-05-16T10:42:31","guid":{"rendered":"https:\/\/www.sudeepaudio.com\/blog\/?p=2629"},"modified":"2020-10-06T12:19:26","modified_gmt":"2020-10-06T06:49:26","slug":"3-things-you-may-not-know-about-bitcoin","status":"publish","type":"post","link":"https:\/\/www.sudeepaudio.com\/saundcheck\/3-things-you-may-not-know-about-bitcoin\/","title":{"rendered":"3 things you may not know about Bitcoin"},"content":{"rendered":"
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The health crisis that\u2019s sweeping the world and keeping us in our homes looks certain to trigger a major global economic crisis. It\u2019s very likely that this will be the biggest economic event of our lifetimes.<\/p>\n

Amid worldwide lockdowns most economic activity has ground to a halt. Central banks everywhere are printing money to try and keep us afloat but in reality that money is being used to bail out stock markets and big corporations. In the meantime people are being made redundant and small businesses are closing by the million.<\/p>\n

It would be prudent in circumstances like these to look again at anything that claims to offer an alternative to the financial system that our bankers and politicians are mismanaging so badly.<\/p>\n

Bitcoin exists outside of the traditional financial system and it is said that this massive economic disruption is exactly the environment it was built for. Like gold, Bitcoin offers us a way to store our savings outside of that fragile – and possibly collapsing \u2013 system.<\/p>\n

So here are three things that you may or may not know about Bitcoin:<\/em><\/span><\/p>\n

1. Bitcoin cannot be stopped<\/strong><\/span><\/h2>\n

Bitcoin runs on a distributed, peer-to-peer computer network. It has no central servers, no company, no head office and no CEO.<\/p>\n

The protocol awards new coins to miners who deploy vast amounts of computer processing power to secure the network. Miners sell those coins on the open market to pay for their energy costs, which in turn distributes the new coins to buyers. The network financially incentivises humans to keep it running.<\/p>\n

\"\"<\/a>In addition there are tens of thousands of lighter Bitcoin nodes run by regular users that check that the protocol rules are being followed and reject any mined blocks of transactions that violate the protocol rules.<\/p>\n

The end result is that no person, corporation or government can shut the network down. They can interfere with our access to the network \u2013 the RBI (Reserve of India) has made life very difficult for Indian cryptocurrency businesses, for example – but the net effect on the network itself is small. Bitcoin just keeps running.<\/p>\n

In the words of Bitcoin’s inventor, the pseudonymous Satoshi Nakamoto: \u201cGovernments are good at cutting off the heads of centrally controlled networks like Napster, but pure Peer-to-Peer networks like Gnutella and Tor seem to be holding their own.\u201d<\/p>\n

 <\/p>\n

2. Bitcoin is the first ever scarce digital good<\/span><\/strong><\/h2>\n

People in the music and film industry know all too well how easy it is to copy and distribute digital files. Once a song or film is in the digital domain it can be replicated unlimited times at virtually no cost. File sharing and CD\/DVD copying has decimated these industries and forced them to completely reinvent distribution and compensation systems.<\/p>\n

One of the key puzzles that Satoshi Nakamoto<\/em> solved with Bitcoin was how to create artificial digital scarcity.\"\"<\/a><\/p>\n

A combination of public-key asymmetric cryptography and an algorithm called Proof of Work means massive computing power and energy consumption is needed to \u2018forge\u2019 new blocks of transactions, \u2018mint\u2019 new coins and secure the network.<\/p>\n

Conversely some simple software on a basic computer allows anybody to easily check ownership of any coins as well as how many coins there are in existence.<\/p>\n

If something is to act as money it needs three attributes \u2013 it needs to be a Store of Value, a Unit of Account and a Medium of Exchange. Digital money can’t provide any of these things until it’s scarce.<\/p>\n

Of course a centralised entity like a bank can create and keep track of digital scarcity, but that requires trust.<\/p>\n

Satoshi Nakamoto said: \u201cThe root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.\u201d<\/p>\n

 <\/p>\n

3. Bitcoin will not destroy the planet<\/span><\/strong><\/h2>\n

Bitcoin mining consumes mind-boggling amounts of energy and in these days of climate emergency it’s only right that we scrutinise this aspect of Bitcoin very closely.<\/p>\n

Consider the first two points in this article in this context<\/em>: firstly Bitcoin cannot be stopped, so even if we were to declare it an environmental disasater and ban it, nobody could enforce that ban and the network would carry on regardless.<\/p>\n

\"\"<\/a>Secondly, it’s this massive energy expenditure that creates and enforces the digital scarcity, which is Bitcoin’s core value. Without it the \u2018trust without a third party\u2019 problem remains unsolved.<\/p>\n


\nEnergy use<\/em><\/strong><\/h3>\n

On the generation side, a recent study concluded that 78% of the Bitcoin mining network runs on renewable energy. This is entirely logical because the competition among miners is fierce and only those with the cheapest electricity costs can mine Bitcoin at a profit, which by and large is surplus renewable energy.<\/p>\n

Another plus is that renewable energy producers now have a way of monetising their surplus energy. When solar panels are humming or wind turbines are spinning and there is less demand than production, they can sell their surplus energy to Bitcoin miners or even install mining equipment on site themselves. This can make renewable energy more profitable, which in turn increases invesment in renewable technology and installations.<\/p>\n

Global economics<\/strong><\/em><\/h3>\n

On the macro side, the stated aim of Bitcoin is no less than the separation of money and state. Its goal is to give the power of money back to \"\"<\/a>the people.<\/p>\n

Bitcoin has a fixed monetary supply \u2013 there will only ever be 21 million bitcoins. This is a dis-inflationary monetary policy with a higher stock-to-flow ratio than gold.<\/p>\n

If Bitcoin achieves its aim of becoming an independent world reserve currency, it will end up alongside real gold in central banks\u2019 vaults backing up national currencies.<\/p>\n

A dis-inflationary world reserve currency would dramatically restrict banks\u2019 and governments’ ability to print money, which is mostly spent on vast militaries and endless wars. The world\u2019s militaries are by far the world\u2019s largest polluters, reining them in would bring enormous environmental benefits.<\/p>\n

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Personal economics<\/strong><\/em><\/h3>\n

On an individual level, we’re so used to inflation constantly draining the value of our savings over time that barely notice that we\u2019re incentivised to spend and consume our wages, not save them.<\/p>\n

\"\"<\/a>If we could keep our savings where they\u2019d be expected to rise in value over time, we\u2019d start measuring today\u2019s purchases against the potentially higher future value of that money. Frivolous purchases would get deferred or ditched and important purchases would be prioritised.<\/p>\n

Dis-inflationary savings turns people from consumers into savers.<\/p>\n

Multiply those individual incentives and decisions by millions of people and we can start to see how dis-inflationary money could finally bring consumer culture to an end, along with the planetary-scale environmental destruction that goes with it.<\/p>\n

 <\/p>\n

Taken together, all these factors suggest that a successful Bitcoin would be a massive net environmental gain for humanity.<\/p>\n

Maybe as a species we’ll finally learn to live within our means.<\/p>\n

***<\/p>\n


\nFurther reading<\/em><\/span><\/h4>\n

If you\u2019re interested in reading more about Bitcoin, here are some good starting points.<\/span><\/p>\n